QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 26, 2009.

or

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For
the transition period
from to

Commission File Number 000-06217

INTEL CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

94-1672743

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

2200 Mission College Boulevard, Santa Clara, California

95054-1549

(Address of principal executive offices)

(Zip Code)

(408) 765-8080
(Registrants telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ

Accelerated filer o

Non-accelerated filer o

Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

We prepared our interim consolidated condensed financial statements that accompany these notes in
conformity with U.S. generally accepted accounting principles, consistent in all material respects
with those applied in our Annual Report on Form 10-K for the year ended December 27, 2008, except
for changes in the accounting for convertible debt as a result of new accounting standards. Prior
year balances have been retrospectively adjusted. See Note 2: Accounting Changes and Note 18:
Borrowings for further discussion.

We have made estimates and judgments affecting the amounts reported in our consolidated condensed
financial statements and the accompanying notes. Our actual results may differ materially from
these estimates. The accounting estimates that require our most significant, difficult, and
subjective judgments include:



the valuation of non-marketable equity investments and the determination of
other-than-temporary impairments;



the valuation of investments in debt instruments and the determination of
other-than-temporary impairments;



the assessment of recoverability of long-lived assets;



the recognition and measurement of current and deferred income taxes (including
the measurement of uncertain tax positions); and



the valuation of inventory.

The interim financial information is unaudited, but reflects all normal adjustments that are, in
our opinion, necessary to provide a fair statement of results for the interim periods presented.
This interim information should be read in conjunction with the consolidated financial statements
in our Annual Report on Form 10-K for the year ended December 27, 2008.

We have evaluated subsequent events through the date that the financial statements were issued on
November 2, 2009.

Note 2: Accounting Changes

In the first quarter of 2009, we adopted new standards that changed the accounting for convertible
debt instruments with cash settlement features. As of adoption, these new standards applied to our
junior subordinated convertible debentures issued in 2005 (the 2005 debentures). Under the previous
standards, our 2005 debentures were recognized entirely as a liability at historical value. In
accordance with adopting these new standards, we retrospectively recognized both a liability and an
equity component of the 2005 debentures at fair value. The liability component is recognized as the
fair value of a similar instrument that does not have a conversion feature at issuance. The equity
component, which is the value of the conversion feature at issuance, is recognized as the
difference between the proceeds from the issuance of the 2005 debentures and the fair value of the
liability component, after adjusting for the deferred tax impact. The 2005 debentures were issued
at a coupon rate of 2.95%, which was below that of a similar instrument that does not have a
conversion feature (6.45%). Therefore, the valuation of the debt component, using the income
approach, resulted in a debt discount. The debt discount is reduced over the expected life of the
debt, which is also the stated life of the debt. These new standards are also applicable in
accounting for our convertible debt issued during the third quarter of 2009. See Note 18:
Borrowings for further discussion.

As a result of applying these new standards retrospectively to all periods presented, we recognized
the following incremental effects on individual line items on the consolidated condensed balance
sheets:

December 27, 2008

Before

After

(In millions)

Adoption

Adjustments

Adoption

Property, plant and equipment, net

$

17,544

$

30

$

17,574

Other long-term assets1

$

6,092

$

(273

)

$

5,819

Long-term debt

$

1,886

$

(701

)

$

1,185

Common stock and capital in excess of par value

$

12,944

$

458

$

13,402

1

Primarily relates to the adjustment made to the net deferred tax asset.

The adoption of these new standards did not result in a change to our prior-period consolidated
condensed statements of operations, as the interest associated with our debt issuances is
capitalized and added to the cost of qualified assets. The adoption of these new standards did not
result in a significant change to depreciation expense or earnings per common share for the third
quarter or the first nine months of 2009.

In the first quarter of 2009, we adopted revised standards for business combinations. These revised
standards generally require an entity to recognize the assets acquired, liabilities assumed,
contingencies, and contingent consideration at their fair value on the acquisition date. In
circumstances where the acquisition-date fair value for a contingency cannot be determined during
the measurement period and it is concluded that it is probable that an asset or liability exists as
of the acquisition date and the amount can be reasonably estimated, a contingency is recognized as
of the acquisition date based on the estimated amount. It further requires that acquisition-related
costs be recognized separately from the acquisition and expensed as incurred, restructuring costs
generally be expensed in periods subsequent to the acquisition date, and changes in accounting for
deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement
period impact income tax expense. In addition, acquired in-process research and development is
capitalized as an intangible asset and amortized over its estimated useful life. These new
standards are applicable to business combinations on a prospective basis beginning in the first
quarter of 2009. Our acquisitions completed in the third quarter of 2009 have been accounted for
using these revised standards. See Note 14: Acquisitions.

In the first quarter of 2009, we adopted new standards that specified the way in which fair value
measurements should be made for non-financial assets and non-financial liabilities that are not
measured and recorded at fair value on a recurring basis, and specified additional disclosures
related to these fair value measurements. The adoption of these new standards did not have a significant impact on our consolidated financial statements.

In the second quarter of 2009, we adopted new standards that provide guidance on how to determine
the fair value of assets and liabilities when the volume and level of activity for the
asset/liability has significantly decreased. These new standards also provide guidance on
identifying circumstances that indicate a transaction is not orderly. In addition, we are required
to disclose in interim and annual periods the inputs and valuation techniques used to measure fair
value and a discussion of changes in valuation techniques. The adoption of these new standards did
not have a significant impact on our consolidated financial statements.

In the second quarter of 2009, we adopted new standards for the recognition and measurement of
other-than-temporary impairments for debt securities that replaced the pre-existing intent and
ability indicator. These new standards specify that if the fair value of a debt security is less
than its amortized cost basis, an other-than-temporary impairment is triggered in circumstances
where (1) an entity has an intent to sell the security, (2) it is more likely than not that the
entity will be required to sell the security before recovery of its amortized cost basis, or (3)
the entity does not expect to recover the entire amortized cost basis of the security (that is, a
credit loss exists). Other-than-temporary impairments are separated into amounts representing
credit losses, which are recognized in earnings, and amounts related to all other factors, which
are recognized in other comprehensive income (loss). The adoption of these new standards did not
have a significant impact on our consolidated financial statements. See Note 6: Available-for-Sale
Investments for further discussion.

Note 3: Recent Accounting Standards

In December 2008, the FASB issued additional disclosure requirements for plan assets of defined
benefit pension or other postretirement plans. The required disclosures include a description of
our investment policies and strategies, the fair value of each major category of plan assets, the
inputs and valuation techniques used to measure the fair value of plan assets, the effect of fair
value measurements using significant unobservable inputs on changes in plan assets, and the
significant concentrations of risk within plan assets. These additional disclosures do not change
the accounting treatment for postretirement benefits plans and are effective for us for fiscal year
2009.

In June 2009, the FASB issued new standards for the accounting for transfers of financial assets.
These new standards eliminate the concept of a qualifying special-purpose entity; remove the scope
exception from applying the accounting standards that address the consolidation of variable
interest entities to qualifying special-purpose entities; change the standards for derecognizing
financial assets; and require enhanced disclosure. These new standards are effective for us
beginning in the first quarter of fiscal year 2010 and are not expected to have a significant
impact on our consolidated financial statements.

In June 2009, the FASB issued amended standards for determining whether to consolidate a variable
interest entity. These amended standards eliminate a mandatory quantitative approach to determine
whether a variable interest gives the entity a controlling financial interest in a variable
interest entity in favor of a qualitatively focused analysis, and require an ongoing reassessment
of whether an entity is the primary beneficiary. These amended standards are effective for us
beginning in the first quarter of fiscal year 2010 and we are currently evaluating the impact that
adoption will have on our consolidated financial statements.

In August 2009, the FASB issued amended standards for the fair value measurement of liabilities.
These amended standards clarify that in circumstances in which a quoted price in an active market
for the identical liability is not available, we are required to use the quoted price of the
identical liability when traded as an asset, quoted prices for similar liabilities, or quoted
prices for similar liabilities when traded as assets. If these quoted prices are not available, we
are required to use another valuation technique, such as an income approach or a market approach.
These amended standards are effective for us beginning in the fourth quarter of fiscal year 2009
and are not expected to have a significant impact on our consolidated financial statements.

In October 2009, the FASB issued new standards for revenue recognition with multiple deliverables.
These new standards impact the determination of when the individual deliverables included in a
multiple-element arrangement may be treated as separate units of
accounting. Additionally, these new standards modify the manner in which the transaction
consideration is allocated across the separately identified deliverables by no longer permitting
the residual method of allocating arrangement consideration. These new standards are effective for
us beginning in the first quarter of fiscal year 2011, however early adoption is permitted. We do
not expect these new standards to significantly impact our consolidated financial statements.

In October 2009, the FASB issued new standards for the accounting for certain revenue arrangements
that include software elements. These new standards amend the scope of pre-existing software
revenue guidance by removing from the guidance non-software components of tangible products and
certain software components of tangible products. These new standards are effective for us
beginning in the first quarter of fiscal year 2011, however early adoption is permitted. We do not
expect these new standards to significantly impact our consolidated financial statements.

Note 4: Fair Value

Fair value is the price that would be received from selling an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. When
determining fair value, we consider the principal or most advantageous market in which we would
transact, and we consider assumptions that market participants would use when pricing the asset or
liability, such as inherent risk, transfer restrictions, and risk of non-performance.

Our financial instruments are measured and recorded at fair value, except for equity method
investments, cost method investments, and most of our long-term debt. We measure our equity method
and cost method investments at fair value quarterly; however, they are only recorded at fair value
when an impairment charge is recognized. Our non-financial assets, such as intangible assets and
property, plant and equipment, are measured at fair value when the carrying amount exceeds the
undiscounted cash flows and are recorded at fair value only when an impairment charge is
recognized.

Financial instruments that are not recorded at fair value are measured at fair value quarterly for
disclosure purposes. The fair value of our non-marketable equity investments exceeded the carrying
value by approximately $1.8 billion as of September 26, 2009 (the fair value exceeded the carrying
value by approximately $300 million as of December 27, 2008). As of September 26, 2009, we had
non-marketable equity investments in an unrealized loss position of approximately $50 million that
had a fair value of approximately $280 million (unrealized loss position of approximately $100
million on non-marketable equity investments with a fair value of approximately $270 million as of
December 27, 2008). The fair value of these investments takes into account the movements of the
equity and venture capital markets as well as changes in the interest rate environment, and other
economic variables. The fair value of our long-term debt was approximately $140 million higher than
the long-term debt carrying value as of September 26, 2009 on our consolidated condensed balance
sheet (approximately $35 million lower than the long-term debt carrying value as of December 27,
2008). The fair value of our long-term debt takes into consideration credit rating changes,
interest rate changes, and other economic variables.

Fair Value Hierarchy

The three levels of inputs that may be used to measure fair value are as follows:

Level 2. Observable inputs other than Level 1 prices, such as quoted prices for similar assets or
liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less
active markets), or model-derived valuations in which all significant inputs are observable or can
be derived principally from or corroborated with observable market data for substantially the full
term of the assets or liabilities. Level 2 inputs also include non-binding market consensus prices
that can be corroborated with observable market data as well as quoted prices that were adjusted
for security-specific restrictions.

Level 3. Unobservable inputs to the valuation methodology that are significant to the measurement
of the fair value of assets or liabilities. Level 3 inputs also include non-binding market
consensus prices or non-binding broker quotes that we were unable to corroborate with observable
market data.

Assets/Liabilities Measured and Recorded at Fair Value on a Recurring Basis

Assets and liabilities measured and recorded at fair value on a recurring basis, excluding accrued
interest components, consisted of the following types of instruments as of September 26, 2009 and
December 27, 2008:

September 26, 2009

December 27, 2008

Fair Value Measured and Recorded at

Fair Value Measured and Recorded at

Reporting Date Using

Reporting Date Using

(In Millions)

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

Assets

Commercial paper

$



$

5,096

$



$

5,096

$



$

4,387

$



$

4,387

Bank time deposits



1,309



1,309



633



633

Money market fund deposits

21

17



38

373

49



422

Floating-rate notes

435

5,523

460

6,418

126

6,366

392

6,884

Corporate bonds

216

1,407

171

1,794

26

225

163

414

Asset-backed securities





870

870





1,083

1,083

Municipal bonds



391



391



383



383

Marketable equity securities

720

46



766

308

44



352

Equity securities offsetting
deferred compensation









299





299

Loans receivable



258



258









Derivative assets



197

18

215



158

15

173

Total assets measured and
recorded at fair value

$

1,392

$

14,244

$

1,519

$

17,155

$

1,132

$

12,245

$

1,653

$

15,030

Liabilities

Long-term debt

$



$



$

122

$

122

$



$



$

122

$

122

Derivative liabilities



181

70

251



274

25

299

Total liabilities measured and
recorded at fair value

$



$

181

$

192

$

373

$



$

274

$

147

$

421

The tables below present reconciliations for all assets and liabilities measured and recorded at
fair value on a recurring basis, excluding accrued interest components, using significant
unobservable inputs (Level 3) for the three and nine months ended September 26, 2009:

Changes in unrealized gains or
losses included in earnings
related to assets and liabilities
still held as of September 26,
20091

$



$

3

$

11

$

(1

)

$

(9

)

$

2

$

6

1

Gains and losses (realized and unrealized) included in earnings for the three and
nine months ended September 26, 2009 are primarily reported in interest and other, net on
the consolidated condensed statements of operations.

Changes in unrealized gains or
losses included in earnings related
to assets and liabilities still
held as of September 26,
20091

$



$



$

50

$

(5

)

$

11

$



$

56

1

Gains and losses (realized and unrealized) included in earnings for the three and
nine months ended September 26, 2009 are primarily reported in interest and other, net on
the consolidated condensed statements of operations.

The tables below present reconciliations for all assets and liabilities measured and recorded at
fair value on a recurring basis, excluding accrued interest components, using significant
unobservable inputs (Level 3) for the three and nine months ended September 27, 2008:

Changes in unrealized gains or
losses included in earnings
related to assets and liabilities
still held as of September 27,
20081

$



$

(4

)

$

(27

)

$



$

(1

)

$

6

$

1

$

(25

)

1

Gains and losses (realized and unrealized) included in earnings for the three and
nine months ended September 27, 2008 are primarily reported in interest and other, net on
the consolidated condensed statements of operations.

Changes in unrealized gains or
losses included in earnings related
to assets and liabilities still
held as of September 27,
20081

$

(1

)

$

6

$

(46

)

$

3

$

(5

)

$



$

(43

)

1

Gains and losses (realized and unrealized) included in earnings for the three and
nine months ended September 27, 2008 are primarily reported in interest and other, net on
the consolidated condensed statements of operations.

Fair Value Option for Financial Assets/Liabilities

Under new accounting standards issued in 2008, all of our non-convertible long-term debt was
eligible to be accounted for at fair value. However, we elected this fair value option only for
the bonds issued in 2007 by the Industrial Development Authority of the City of Chandler, Arizona
(2007 Arizona bonds). In connection with the 2007 Arizona bonds, we entered into a total return
swap agreement that effectively converts the fixed rate obligation on the bonds to a floating
U.S.-dollar LIBOR-based rate. As a result, changes in the fair value of this debt are largely
offset by changes in the fair value of the total return swap agreement, without the need to apply
hedge accounting provisions. We did not elect this fair value option for our Arizona bonds issued
in 2005, since the bonds were carried at amortized cost and were not eligible to apply hedge
accounting provisions due to the use of non-derivative hedging instruments. The 2007 Arizona bonds
are included within the long-term debt balance on our consolidated condensed balance sheets. As of
September 26, 2009 and December 27, 2008, no other instruments were similar to the long-term debt
instrument for which we elected fair value treatment.

The fair value of the 2007 Arizona bonds approximated carrying value at the time we elected the
fair value option; therefore, we did not record a cumulative-effect adjustment to the beginning
balance of retained earnings or to the deferred tax liability. As of September 26, 2009, the fair
value of the 2007 Arizona bonds did not significantly differ from the contractual principal
balance. The fair value of the 2007 Arizona bonds was determined using inputs that are observable
in the market or that can be derived from or corroborated with observable market data as well as
unobservable inputs which were significant to the fair value. Gains and losses on the 2007 Arizona
bonds are recorded in interest and other, net on the consolidated condensed statements of
operations. We capitalize interest associated with the 2007 Arizona bonds. We add capitalized
interest to the cost of qualified assets and amortize it over the estimated useful lives of the
assets.

We elected the fair value option for loans made in the second quarter of 2009. Our loans receivable
are denominated in euros and mature in 2012-2013. In connection with our loans receivable, we
entered into a currency interest rate swap agreement that effectively converts the euro-denominated
fixed-rate loans receivable to a floating U.S.-dollar LIBOR-based rate. As a result, changes in the
fair value are largely offset by changes in the fair value of the currency interest rate swap
agreement, without the need to apply hedge accounting provisions. As of September 26, 2009, the
fair value of our loans receivable did not significantly differ from the contractual principal
balance. These loans receivable are classified within other long-term assets. Fair value is
determined using a discounted cash flow model with all significant inputs derived from or
corroborated with observable market data. Gains and losses from changes in fair value, as well as
interest income, are recorded in interest and other, net on the consolidated condensed statements
of operations. We measure interest income using the interest method, which is based on the
effective yield of the loans receivable rather than the stated coupon rate. During the third
quarter of 2009 and the first nine months of 2009, gains from fair value changes of our loans
receivable were offset by losses from fair value changes of the currency interest rate swap,
resulting in a negligible net impact on our consolidated condensed statements of operations. Gains
and losses attributable to changes in credit risk were not significant during the third quarter of
2009 and the first nine months of 2009. Gains and losses attributable to changes in credit risk are
determined using observable credit default spreads for comparable companies.

The following table presents the financial instruments and non-financial assets that were measured
and recorded at fair value on a non-recurring basis during the nine months ended September 26,
2009, and the gains (losses) recorded during the three and nine months ended September 26, 2009 on
those assets:

Total Gains

Total Gains

(Losses) for

(Losses) for

Net Carrying

Three Months

Nine Months

Value as of

Fair Value Measured and Recorded Using

Ended

Ended

(In Millions)

Sept. 26, 2009

Level 1

Level 2

Level 3

Sept. 26, 2009

Sept. 26, 2009

Non-marketable equity investments1

$

217

$



$



$

221

$

(50

)

$

(162

)

Property, plant and equipment2

33



22

15

(7

)

(17

)

Total gains (losses) for assets held asof September 26, 2009

$

(57

)

$

(179

)

Gains (losses) for property, plant and
equipment assets no longer held

$

(49

)

$

(101

)

Gains (losses) for non-marketable equity
investments no longer held



(6

)

Total gains (losses) for recorded non-recurring measurement

$

(106

)

$

(286

)

1

Our carrying value as of September 26, 2009 did not equal our fair value
measurement at the time of impairment due to the subsequent recognition of equity method
adjustments.

2

Our carrying value as of September 26, 2009 did not equal our fair value
measurement at the time of impairment due to the subsequent recognition of depreciation
expense.

The following table presents the financial instruments that were measured and recorded at fair
value on a non-recurring basis during the nine months ended September 27, 2008, and the gains
(losses) recorded during the three and nine months ended September 27, 2008 on those assets:

Total Gains

Total Gains

(Losses) for

(Losses) for

Net Carrying

Three Months

Nine Months

Value as of

Fair Value Measured and Recorded Using

Ended

Ended

(In Millions)

Sept. 27, 2008

Level 1

Level 2

Level 3

Sept. 27, 2008

Sept. 27, 2008

Non-marketable equity investments

$

527

$



$



$

527

$

(281

)

$

(325

)

Total gains (losses) for assets held
as
of September 27, 2008

$

(281

)

$

(325

)

A portion of our non-marketable equity investments were measured and recorded at fair value in the
first nine months of 2009 and 2008 due to events or circumstances that significantly impacted the
fair value of these investments, resulting in other-than-temporary impairment charges.

We recorded a $250 million impairment charge on our investment in Numonyx B.V. during the third
quarter of 2008 to write down our investment to its fair value. Estimates for revenue, earnings,
and future cash flows were revised lower due to a general decline in the NOR flash memory market
segment. We measured the fair value of our investment in Numonyx using a combination of the income
approach and the market approach. The income approach included the use of a weighted average of
multiple discounted cash flow scenarios of Numonyx, which required the use of unobservable inputs,
including assumptions of projected revenue, expenses, capital spending, and other costs, as well as
a discount rate calculated based on the risk profile of the flash memory market segment comparable
to our investment in Numonyx. The market approach included using financial metrics and ratios of
comparable public companies, such as projected revenues, earnings, and comparable performance
multiples. The impairment charge was included in gains (losses) on equity method investments, net
on the consolidated condensed statements of operations.

We also measured and recorded other non-marketable equity investments at fair value in the first
nine months of 2009 and 2008 when we recognized other-than-temporary impairment charges. We
classified these measurements as Level 3, as we used unobservable inputs to the valuation
methodologies that were significant to the fair value measurements, and the valuations required
management judgment due to the absence of quoted market prices and inherent lack of liquidity. We
calculated these fair value measurements using the market approach and/or the income approach. The
market approach includes the use of financial metrics and ratios of comparable public companies.
The selection of comparable companies requires management judgment and is based on a number of
factors, including comparable companies sizes, growth rates, industries, development stages, and
other relevant factors. The income approach includes the use of a discounted cash flow model, which
requires the following significant estimates for the investee: revenue, based on assumed market
segment size and assumed market segment share; estimated costs; and appropriate discount rates
based on the risk profile of comparable companies. Estimates of market segment size, market segment
share, and costs are developed by the investee and/or Intel using historical data and available
market data. The valuation of these non-marketable equity investments also takes into account
movements of the equity and venture capital markets, recent financing activities by the investees,
changes in the interest rate environment, the investees capital structure, liquidation preferences
for the investees capital, and other economic variables.

Additionally, certain of our property, plant and equipment were measured and recorded at fair value
in the first nine months of 2009 due to events or circumstances we identified that indicated that
the carrying value of the assets or the asset grouping was not recoverable, resulting in
other-than-temporary impairment charges. Most of these asset impairments relate to manufacturing
assets.

Note 5: Trading Assets

Trading assets at fair value at the end of each period were as follows:

September 26, 2009

Dec. 27, 2008

Net

Net

Unrealized

Unrealized

(In Millions)

Gains (Losses)

Fair Value

Gains (Losses)

Fair Value

Marketable debt instruments

$

65

$

3,671

$

(96

)

$

2,863

Equity securities offsetting deferred compensation





(41

)

299

Total trading assets

$

65

$

3,671

$

(137

)

$

3,162

During the third quarter of 2009, we sold our equity securities offsetting deferred compensation
and entered into derivative instruments that seek to offset changes in liabilities related to these
deferred compensation arrangements. These deferred compensation liabilities were $496 million as of
September 26, 2009 ($332 million as of December 27, 2008) and are included in other accrued
liabilities. See Note 8: Derivative Financial Instruments for further information on our equity
market risk management programs. Gross realized gains and losses on the sale of these equity
securities offsetting deferred compensation were insignificant. Net losses on equity securities
offsetting deferred compensation arrangements still held at the reporting date were $36 million in
the third quarter of 2008 and $96 million in the first nine months of 2008.

Net gains on marketable debt instruments that we classified as trading assets held at the reporting
date were $73 million in the third quarter of 2009 and $149 million in the first nine months of
2009 (losses of $107 million in the third quarter of 2008 and $98 million in the first nine months
of 2008). Net losses on the related derivatives were $47 million in the third quarter of 2009 and
$55 million in the first nine months of 2009 (gains of $64 million in the third quarter of 2008 and
$36 million in the first nine months of 2008).

Available-for-sale investments as of September 26, 2009 and December 27, 2008 were as follows:

September 26, 2009

December 27, 2008

Gross

Gross

Gross

Gross

Adjusted

Unrealized

Unrealized

Adjusted

Unrealized

Unrealized

(In Millions)

Cost

Gains

Losses1

Fair Value

Cost

Gains

Losses

Fair Value

Floating-rate notes

$

5,881

$

11

$

(22

)

$

5,870

$

6,599

$

3

$

(133

)

$

6,469

Commercial paper

4,630





4,630

3,244

4



3,248

Bank time deposits2

1,215

1



1,216

606

2



608

Money market fund deposits

22





22

419





419

Marketable equity securities

405

361



766

393

2

(43

)

352

Asset-backed securities

249

2

(54

)

197

374



(43

)

331

Corporate bonds

285

25



310

270

4

(6

)

268

Total available-for-sale
investments

$

12,687

$

400

$

(76

)

$

13,011

$

11,905

$

15

$

(225

)

$

11,695

1

As of September 26, 2009, unrealized non-credit components of other-than-temporary
impairments recognized on available-for-sale investments were not
significant.

2

Bank time deposits were primarily issued by institutions outside the U.S. as of
September 26, 2009 and December 27, 2008.

The available-for-sale investments that were in an unrealized loss position as of September 26,
2009 and December 27, 2008, aggregated by length of time that individual securities had been in a
continuous loss position, were as follows:

September 26, 2009

Less than 12 Months

12 Months or Greater

Total

Gross

Gross

Gross

Unrealized

Unrealized

Unrealized

(In Millions)

Losses

Fair Value

Losses

Fair Value

Losses

Fair Value

Floating-rate notes

$

(6

)

$

902

$

(16

)

$

1,788

$

(22

)

$

2,690

Asset-backed securities





(54

)

159

(54

)

159

Total

$

(6

)

$

902

$

(70

)

$

1,947

$

(76

)

$

2,849

December 27, 2008

Less than 12 Months

12 Months or Greater

Total

Gross

Gross

Gross

Unrealized

Unrealized

Unrealized

(In Millions)

Losses

Fair Value

Losses

Fair Value

Losses

Fair Value

Floating-rate notes

$

(70

)

$

2,933

$

(63

)

$

1,701

$

(133

)

$

4,634

Marketable equity securities

(43

)

322





(43

)

322

Asset-backed securities





(43

)

312

(43

)

312

Corporate bonds

(1

)

6

(5

)

77

(6

)

83

Total

$

(114

)

$

3,261

$

(111

)

$

2,090

$

(225

)

$

5,351

Substantially all of our unrealized losses on our available-for-sale marketable debt instruments
can be attributed to fair value fluctuations that occurred in an unstable credit environment that
resulted in a decrease in the liquidity for these debt instruments. As of September 26, 2009, a
substantial majority of our available-for-sale investments in an unrealized loss position were
rated AA-/Aa3 or better. With the exception of a limited amount of investments for which we have
recognized other-than-temporary impairments, we have not seen significant liquidation delays, and
for those that have matured we have received the full par value of our original debt investments.
We do not intend to sell our debt investments that have unrealized losses in accumulated other
comprehensive income (loss). In addition, it is not more likely than not that we will be required
to sell our debt investments that have unrealized losses in accumulated other comprehensive income
(loss) before we recover the principal amounts invested, based on our evaluation of available
evidence as of September 26, 2009.

The amortized cost and fair value of available-for-sale debt investments as of September 26, 2009,
by contractual maturity, were as follows:

(In Millions)

Cost

Fair Value

Due in 1 year or less

$

8,576

$

8,578

Due in 1-2 years

1,545

1,552

Due in 2-5 years

1,879

1,884

Due after 5 years

11

12

Instruments not due at a single maturity date1

271

219

Total

$

12,282

$

12,245

1

Includes asset-backed securities and money market fund deposits.

We sold available-for-sale investments, primarily marketable equity securities, for proceeds of
$5 million in the third quarter of 2009 and $67 million in the first nine months of 2009 ($210
million in the third quarter of 2008 and $1.1 billion in the first nine months of 2008, primarily
marketable debt instruments). The gross realized gains on sales of available-for-sale investments
were not significant in the third quarter of 2009 and $12 million in the first nine months of 2009
($5 million in the third quarter of 2008 and $27 million in the first nine months of 2008) and were
primarily related to our sales of marketable equity securities. We determine the cost of the
investment sold based on the specific identification method. Impairment charges recognized on
available-for-sale investments were not significant in the third quarter of 2009 and $9 million in
the first nine months of 2009 ($45 million in the third quarter of 2008 and $140 million in the
first nine months of 2008). The 2008 impairment charges were primarily related to $97 million of
impairment charges on our investment in Micron Technology, Inc. Gross realized losses on sales were
insignificant during the third quarter of 2009 and 2008 and the first nine months of 2009 and 2008.

The before-tax net unrealized holding gains (losses) on available-for-sale investments that have
been included in accumulated other comprehensive income (loss) and the before-tax net gains
(losses) reclassified from accumulated other comprehensive income (loss) into earnings were as
follows:

Three Months Ended

Nine Months Ended

Sept. 26,

Sept. 27,

Sept. 26,

Sept. 27,

(In Millions)

2009

2008

2009

2008

Net unrealized
holding gains
(losses) included
in accumulated
other comprehensive
income (loss)

$

314

$

(269

)

$

537

$

(628

)

Net gains (losses)
reclassified from
accumulated other
comprehensive
income (loss) into
earnings

$



$

(7

)

$

(8

)

$

(73

)

Other-Than-Temporary Impairment of Marketable Debt Instruments

If the fair value of an available-for-sale debt instrument is less than its amortized cost basis,
an other-than-temporary impairment is triggered in circumstances where (1) we intend to sell the
instrument, (2) it is more likely than not that we will be required to sell the instrument before
recovery of its amortized cost basis, or (3) we do not expect to recover the entire amortized cost
basis of the instrument (that is, a credit loss exists). If we intend to sell or it is more likely
than not that we will be required to sell the available-for-sale debt instrument before recovery of
its amortized cost basis, we recognize an other-than-temporary impairment in earnings equal to the
entire difference between the debt instruments amortized cost basis and its fair value. For
available-for-sale debt instruments that are considered other-than-temporarily impaired due to the
existence of a credit loss, we separate the amount of the impairment into the amount that is credit
related and the amount due to all other factors. The credit loss component is recognized in
earnings and is the difference between the debt instruments amortized cost basis and the present
value of its expected future cash flows. The difference between the debt instruments fair value
and the present value of future expected cash flows is due to factors that are not credit related
and is recognized in other comprehensive income (loss). In the third quarter of 2009, the credit
and non-credit components of other-than-temporary impairments recognized on available-for-sale debt
instruments were not significant.

We currently do not enter into derivative instruments to manage credit risk; however, we manage our
exposure to credit risk through our policies. We generally enter into derivative transactions with
high-credit-quality counterparties and, by policy, limit the amount of credit exposure to any one
counterparty based on our analysis of that counterpartys relative credit standing. The amounts
subject to credit risk related to derivative instruments are generally limited to the amounts, if
any, by which a counterpartys obligations exceed our obligations with that counterparty, because
we enter into master netting arrangements with counterparties when possible to mitigate credit risk
in derivative transactions. A master netting arrangement may allow counterparties to net settle
amounts owed to each other as a result of multiple, separate derivative transactions.

Currency Exchange Rate Risk

We are exposed to currency exchange rate risk on our non-U.S.-dollar-denominated investments in
debt instruments and loans receivable, which are generally hedged with offsetting currency forward
contracts, currency options, or currency interest rate swaps. A majority of our revenue, expense,
and capital purchasing activities are transacted in U.S. dollars. However, certain operating
expenditures and capital purchases are incurred in or exposed to other currencies, primarily the
euro, the Israeli shekel, the Chinese yuan, and the Japanese yen. We have established balance sheet
and forecasted transaction currency risk management programs to protect against fluctuations in
fair value and the volatility of future cash flows caused by changes in exchange rates. These
programs reduce, but do not always entirely eliminate, the impact of currency exchange movements.

Our currency risk management programs include:



Currency derivatives with cash flow hedge accounting designation that utilize
currency forward contracts and currency options to hedge exposures to the variability in
the U.S.-dollar equivalent of anticipated non-U.S.-dollar-denominated cash flows. These
instruments generally mature within 12 months. For these derivatives, we report the
after-tax gain or loss from the effective portion of the hedge as a component of
accumulated other comprehensive income (loss) in stockholders equity and reclassify it
into earnings in the same period or periods in which the hedged transaction affects
earnings, and within the same line item on the consolidated condensed statements of
operations as the impact of the hedged transaction.



Currency derivatives with fair value hedge accounting designation that utilize
currency forward contracts and currency options to hedge the fair value exposure of
recognized foreign-currency-denominated assets or liabilities, or previously unrecognized
firm commitments. For fair value hedges, we recognize gains or losses in earnings to offset
fair value changes in the hedged asset/liability. As of September 26, 2009 and December 27,
2008, we did not have any derivatives designated as foreign currency fair value hedges.



Currency derivatives without hedge accounting designation that utilize currency
forward contracts, currency options, or currency interest rate swaps to economically hedge
the functional currency equivalent cash flows of recognized monetary assets and liabilities
and non-U.S.-dollar-denominated debt instruments classified as trading assets. The maturity
of these instruments generally occurs within 12 months, except for derivatives associated
with certain long-term equity-related investments and our loans receivable that generally
mature within five years. Changes in the U.S.-dollar-equivalent cash flows of the
underlying assets and liabilities are approximately offset by the changes in fair values of
the related derivatives. We record net gains or losses in the line item on the consolidated
condensed statements of operations most closely associated with the economic underlying,
primarily in interest and other, net, except for equity-related gains or losses, which we
primarily record in gains (losses) on other equity investments, net.

Our primary objective for holding investments in debt instruments is to preserve principal while
maximizing yields. We generally swap the returns on our investments in fixed-rate debt instruments
with remaining maturities longer than six months into U.S. dollar three-month LIBOR-based returns
unless management specifically approves otherwise.

Our interest rate risk management programs include:



Interest rate derivatives with cash flow hedge accounting designation that
utilize interest rate swap agreements to modify the interest characteristics of debt
instruments. For these derivatives, we report the after-tax gain or loss from the effective
portion of the hedge as a component of accumulated other comprehensive income (loss) and
reclassify it into earnings in the same period or periods in which the hedged transaction
affects earnings, and within the same line item on the consolidated condensed statements of
operations as the impact of the hedged transaction.



Interest rate derivatives with fair value hedge accounting designation that
utilize interest rate swap agreements to hedge the fair values of debt instruments. We
recognize the gains or losses from the changes in fair value of these instruments, as well
as the offsetting change in the fair value of the hedged debt instruments, in interest
expense. As of September 26, 2009 and December 27, 2008, we did not have any interest rate
derivatives designated as fair value hedges.



Interest rate derivatives without hedge accounting designation that utilize
interest rate swaps and currency interest rate swaps in economic hedging transactions,
including hedges of non-U.S.-dollar-denominated debt instruments classified as trading
assets. Floating interest rates on the swaps are reset on a monthly, quarterly, or
semiannual basis. Changes in fair value of the debt instruments classified as trading
assets are generally offset by changes in fair value of the related derivatives, both of
which are recorded in interest and other, net.

Equity Market Risk

Our marketable investments include marketable equity securities and equity derivative instruments
such as warrants and options. To the extent that our marketable equity securities have strategic
value, we typically do not attempt to reduce or eliminate our equity
market exposure through hedging activity; however, for our
investments in strategic equity derivative instruments, including warrants, we may enter into
transactions to reduce or eliminate the equity market risks. For securities that we no longer consider
strategic, we evaluate legal, market, and economic factors in our decision on the timing of
disposal and whether it is possible and appropriate to hedge the equity market risk. Prior to the
third quarter of 2009, we held equity securities, which were classified as trading assets, to
generate returns that sought to offset changes in liabilities related to the equity market risk of
certain deferred compensation arrangements. In the third quarter of 2009, we sold these securities
and began utilizing derivative instruments to offset the equity market risks of these deferred
compensation arrangements. The gains and losses on the derivative instruments are intended to more
closely offset changes in the liabilities related to the deferred compensation arrangements than
our previous method of investing in equity securities.

Our equity market risk management programs include:



Equity derivatives with hedge accounting designation that utilize equity
options, swaps, or forward contracts to hedge the equity market risk of marketable equity
securities when these investments are not considered to have strategic value. These
derivatives are generally designated as fair value hedges. We recognize the gains or losses
from the change in fair value of these equity derivatives, as well as the offsetting change
in the fair value of the underlying hedged equity securities, in gains (losses) on other
equity investments, net. As of September 26, 2009 and December 27, 2008, we did not have
any equity derivatives designated as fair value hedges.



Equity derivatives without hedge accounting designation that utilize equity
derivatives, such as warrants, equity options, or other equity derivatives. We recognize
changes in the fair value of such derivatives in gains (losses) on other equity
investments, net. We also utilize total return swaps to offset changes in liabilities
related to the equity market risks of certain deferred compensation arrangements. Gains and
losses from changes in fair value of these total return swaps are generally offset by the
gains and losses on the related liabilities, both of which are recorded in interest and
other, net.

Commodity Price Risk

We operate facilities that consume commodities, and we have established forecasted transaction risk
management programs to protect against fluctuations in fair value and the volatility of future cash
flows caused by changes in commodity prices, such as those for natural gas. These programs reduce,
but do not always entirely eliminate, the impact of commodity price movements.

Our commodity price risk management program includes:



Commodity derivatives with cash flow hedge accounting designation that utilize
commodity swap contracts to hedge future cash flow exposures to the variability in
commodity prices. These instruments generally mature within 12 months. For these
derivatives, we report the after-tax gain (loss) from the effective portion of the hedge as
a component of accumulated other comprehensive income (loss) in stockholders equity and
reclassify it into earnings in the same period or periods in which the hedged transaction
affects earnings, and within the same line item on the consolidated condensed statements of
operations as the impact of the hedged transaction.

We typically do not hold derivative instruments for the purpose of managing credit risk, since we
limit the amount of credit exposure to any one counterparty and generally enter into derivative
transactions with high-credit-quality counterparties. As of September 26, 2009 and December 27,
2008, our credit risk management program did not include credit derivatives.

Volume of Derivative Activity

Total gross notional amounts for outstanding derivatives (recorded at fair value) were as follows:

Sept. 26,

Dec. 27,

Sept. 27,

(In Millions)

2009

2008

2008

Currency forwards

$

3,717

$

4,331

$

4,511

Embedded debt derivative

3,600

1,600

1,600

Currency interest rate swaps

1,455

612

649

Interest rate swaps

1,254

1,209

1,187

Total return swaps

480

125

125

Currency options

281





Other

100

163

174

Total

$

10,887

$

8,040

$

8,246

The gross notional amounts for currency forwards, currency interest rate swaps, and currency
options, presented by currency, were as follows:

Sept. 26,

Dec. 27,

Sept. 27,

(In Millions)

2009

2008

2008

Euro

$

2,707

$

1,819

$

2,288

Israeli shekel

625

680

730

British pound sterling

620

366

375

Japanese yen

605

909

575

Chinese yuan

335

491

489

Malaysian ringgit

241

326

295

Other

320

352

408

Total

$

5,453

$

4,943

$

5,160

We utilize a rolling hedge strategy for the majority of our currency forward contracts with cash
flow hedge accounting designation that hedge exposures to the variability in the U.S.-dollar
equivalent of anticipated non-U.S.-dollar-denominated cash flows. All of our currency forward
contracts are single delivery, which are settled at maturity involving one cash payment exchange.

We use interest rate swaps and currency interest rate swaps to hedge interest rate and currency
exchange rate risk components for our fixed-rate debt instruments with remaining maturities longer
than six months and for debt instruments denominated in currencies other than the U.S dollar. These
swaps have multiple deliveries, which are settled at various interest payment times involving cash
payments at each interest and principal payment date, with the majority of the contracts having
quarterly payments.

Credit-Risk-Related Contingent Features

An insignificant amount of our derivative instruments contain credit-risk-related contingent
features, such as provisions that require our debt to maintain an investment grade credit rating
from each of the major credit rating agencies. As of September 26, 2009 and December 27, 2008, we
did not have any derivative instruments with credit-risk-related contingent features that were in a
significant net liability position.

We estimate that we will reclassify approximately $110 million (before taxes) of net derivative
gains included in other accumulated comprehensive income (loss) into earnings within the next 12
months. For all periods presented, there was not a significant impact on results of operations from
discontinued cash flow hedges as a result of forecasted transactions that did not occur.

Derivatives Not Designated as Hedging Instruments

The effects of derivative instruments not designated as hedging instruments on the consolidated
condensed statements of operations were as follows:

Three Months Ended

Nine Months Ended

Location of Gains (Losses)

Sept. 26,

Sept. 27,

Sept. 26,

Sept. 27,

(In Millions)

Recognized in Income on Derivative

2009

2008

2009

2008

Currency forwards

Interest and other, net

$

40

$

7

$

13

$

24

Interest rate swaps

Interest and other, net

(5

)

5

12

4

Currency interest rate swaps

Interest and other, net

(46

)

39

(51

)

16

Total return swaps

Interest and other, net

41

1

42

3

Other

Interest and other, net

(6

)

3

(1

)

(7

)

Other

Gains (losses) on other equity investments, net

(5

)

(2

)

2

(2

)

Total

$

19

$

53

$

17

$

38

Note 9: Other Long-Term Assets

Other long-term assets at the end of each period were as follows:

Sept. 26,

Dec. 27,

(In Millions)

2009

2008

Non-marketable equity method investments

$

2,520

$

3,032

Non-marketable cost method investments

990

1,021

Identified intangible assets

972

775

Other

1,115

991

Total other long-term assets

$

5,597

$

5,819

Long-term loans receivable are included in Other in the table above. See Note 4: Fair Value for
further discussion on our loans receivable.

Note 10: Equity Method Investments

IMFT/IMFS

Micron and Intel formed IM Flash Technologies, LLC (IMFT) in January 2006 and IM Flash Singapore,
LLP (IMFS) in February 2007. We established these joint ventures to manufacture NAND flash memory
products for Micron and Intel. We own a 49% interest in each of these ventures. Initial production
at the IMFS fabrication facility, including the purchase and installation of manufacturing
equipment, remains on hold.

These joint ventures are variable interest entities. All costs of the joint ventures will be passed
on to Micron and Intel through our purchase agreements. IMFT and IMFS are dependent upon Micron and
Intel for any additional cash requirements. Our known maximum exposure to loss approximated our
investment balances as of September 26, 2009, which were $1.4 billion in IMFT and $305 million in
IMFS ($1.7 billion in IMFT and $329 million in IMFS as of December 27, 2008). Our investments in
these ventures are classified within other long-term assets. As of September 26, 2009, except for
the amount due to IMFT and IMFS for product purchases and services, we did not incur any additional
liabilities in connection with our interests in these joint ventures. In addition to the potential
loss of our existing investments, our actual losses could be higher, as Intel and Micron are liable
for other future operating costs and/or obligations of IMFT and IMFS. In addition, future cash
calls could increase our investment balance and the related exposure to loss. Finally, as we are
currently committed to purchasing 49% of IMFTs production output and production-related services,
we may be required to purchase products at a cost in excess of realizable value.

Our portion of IMFTs costs, primarily related to product purchases and start-up costs, was
approximately $140 million during the third quarter of 2009 and approximately $535 million during
the first nine months of 2009 (approximately $290 million during the third quarter of 2008 and
approximately $815 million during the first nine months of 2008). The amount due to IMFT for
product purchases and services provided was approximately $60 million as of September 26, 2009 and
approximately $190 million as of December 27, 2008. During the first nine months of 2009, $324
million was returned to Intel by IMFT, which is reflected as a return of equity method investment
within investing activities on the consolidated condensed statements of cash flows ($193 million
during the first nine months of 2008).

Micron and Intel are considered related parties under the accounting standards for consolidating
variable interest entities. As a result, the primary beneficiary is the entity that is most closely
associated with the joint ventures. To make that determination, we reviewed several factors. The
most important factors were consideration of the size and nature of the joint ventures operations
relative to Micron and Intel, and which party had the majority of economic exposure under the
purchase agreements. Based on those factors, we have determined that we are not most closely
associated with the joint ventures; therefore, we account for our interests using the equity method
of accounting and do not consolidate these joint ventures.

We determine the fair value of our investments in IMFT and IMFS and related intangible assets using
the income approach, based on a weighted average of multiple discounted cash flow scenarios of our
NAND Solutions Group business. The assumptions that most significantly affect the fair value
determination are the estimates for projected revenue and discount rate. Estimates used in the
fair value determination could change and result in an impairment of
our investments.

Numonyx

In 2008, we divested our NOR flash memory business in exchange for a 45.1% ownership interest in
Numonyx. As of September 26, 2009, our investment balance in Numonyx was $438 million and is
included within other long-term assets ($484 million as of December 27, 2008). Our investment in
Numonyx is accounted for under the equity method of accounting, and our proportionate share of the
income or loss is recognized on a one-quarter lag. During the third quarter of 2008, we recorded a
$250 million impairment charge on our investment in Numonyx within gains (losses) on equity method
investments, net. See Note 4: Fair Value for further discussion.

In 2008, Numonyx entered into an unsecured, four-year senior credit facility of up to $550 million,
consisting of a $450 million term loan and a $100 million revolving loan. Intel and
STMicroelectronics N.V. have each provided the lenders with a guarantee of 50% of the payment
obligations of Numonyx under the senior credit facility. A demand on our guarantee can be triggered
if Numonyx is unable to meet its obligations under the credit facility. Acceleration of the
obligations of Numonyx under the credit facility could be triggered by a monetary default of
Numonyx or, in certain circumstances, by events affecting the creditworthiness of
STMicroelectronics. The maximum amount of future undiscounted payments that we could be required to
make under the guarantee is $275 million plus accrued interest, expenses of the lenders, and
penalties. As of September 26, 2009, the carrying amount of the liability associated with the
guarantee was $79 million, unchanged from the amount initially recorded in 2008, and is included in
other accrued liabilities.

Clearwire LLC

As of September 26, 2009, our investment balance in Clearwire Communications, LLC (Clearwire LLC)
was $195 million and is included within other long-term assets ($238 million as of December 27,
2008). Our investment in Clearwire LLC is accounted for under the equity method of accounting, and
our proportionate share of the income or loss is recognized on a one-quarter lag. As of September
26, 2009, the carrying value of our investment in Clearwire LLC is approximately $380 million below
our share of the book value of the net assets of Clearwire Corporation, and a substantial majority
of this difference has been assigned to Clearwire spectrum assets, a majority of which have an
indefinite life.

Consideration for acquisitions that qualify as business combinations includes the net cash paid and
the fair value of any vested share-based awards assumed. During the third quarter of 2009, we
completed two acquisitions qualifying as business combinations for total consideration of $885
million (net of $59 million cash acquired). Substantially all of this amount related to the
acquisition of Wind River Systems Inc., a leading vendor of software for embedded devices,
completed by acquiring all issued and outstanding Wind River common shares. The acquisition of Wind
River will enable the introduction of leading-edge products for the embedded and handheld market
segments resulting in synergistic benefits for our existing operations.

The combined consideration for acquisitions completed in the third quarter of 2009 was allocated as
follows:

(In Millions)

Fair value of net tangible assets acquired

$

47

Goodwill

489

Acquired developed technology

148

Other identified intangible assets

169

Share-based awards assumed

32

Total

$

885

The completed acquisitions in the third quarter of 2009 were not significant to our consolidated
results of operations.

Goodwill activity by reportable operating segment for the first nine months of 2009 was as follows:

Digital

Enterprise

Mobility

(In Millions)

Group

Group

All Other

Total

Goodwill, net

December 27, 2008

$

3,515

$

248

$

169

$

3,932

Additions due to business combinations

192

142

155

489

September 26, 2009

$

3,707

$

390

$

324

$

4,421

In the
third quarter of 2009, we completed the acquisition of Wind River (see Note 14:
Acquisitions). Goodwill recognized from this acquisition was assigned to our Digital Enterprise
Group, our Mobility Group, our Digital Home Group, and our Wind River Software Group
based on the relative expected fair value provided by the
acquisition. The assignment to our Digital Enterprise Group, our
Mobility Group, and our Digital Home Group was based on the proportionate synergistic benefits expected to be generated for each group
resulting from enhanced market presence for existing businesses. The goodwill assigned to our Wind
River Software Group represents most of the amount reflected under the All Other category in the
table above.

No goodwill was impaired during the first nine months of 2009 and 2008, and the accumulated
impairment losses as of December 27, 2008 and September 26, 2009 was $713 million, substantially
all of which was related to our Digital Enterprise Group.

Note 16: Identified Intangible Assets

We classify identified intangible assets within other long-term assets on the consolidated
condensed balance sheets. Identified intangible assets consisted of the following as of
September 26, 2009:

Gross

Accumulated

(In Millions)

Assets

Amortization

Net

Intellectual property assets

$

1,190

$

(578

)

$

612

Acquisition-related developed technology

166

(18

)

148

Other intangible assets

509

(297

)

212

Total identified intangible assets

$

1,865

$

(893

)

$

972

Identified intangible assets consisted of the following as of December 27, 2008:

Gross

Accumulated

(In Millions)

Assets

Amortization

Net

Intellectual property assets

$

1,206

$

(582

)

$

624

Acquisition-related developed technology

22

(8

)

14

Other intangible assets

340

(203

)

137

Total identified intangible assets

$

1,568

$

(793

)

$

775

During the first nine months of 2009, we acquired intellectual property assets for $99 million with
a weighted average life of 6 years. During the first nine months of 2009, as a result of our
acquisition of Wind River, we recorded acquisition-related developed technology for $148 million
with a weighted average life of 4 years and additions to other
intangible assets of $169 million.
The substantial majority of other intangible assets recorded were associated with customer relationships
and the Wind River trade name with a weighted average life of 7 years. The remaining amount
included in other intangible assets is related to acquired in-process research and development.

We recorded the amortization of identified intangible assets on the consolidated condensed
statements of operations as follows: intellectual property assets generally in cost of sales;
acquisition-related developed technology in amortization of acquisition-related intangibles and
costs; and other intangible assets as either a reduction of revenue or in amortization of
acquisition-related intangibles and costs. The amortization expense was as follows:

Three Months Ended

Nine Months Ended

Sept. 26,

Sept. 27,

Sept. 26,

Sept. 27,

(In Millions)

2009

2008

2009

2008

Intellectual property assets

$

37

$

41

$

111

$

122

Acquisition-related developed technology

$

11

$

2

$

14

$

4

Other intangible assets

$

34

$

25

$

94

$

68

Based on identified intangible assets recorded as of September 26, 2009, and assuming the
underlying assets will not be impaired in the future, we expect amortization expense for each
period to be as follows:

(In Millions)

20091

2010

2011

2012

2013

Intellectual property assets

$

37

$

147

$

95

$

84

$

67

Acquisition-related developed technology

$

15

$

54

$

45

$

24

$

10

Other intangible assets

$

35

$

26

$

20

$

24

$

23

1

Reflects the remaining three months of 2009.

Note 17: Restructuring and Asset Impairment Charges

The following table summarizes restructuring and asset impairment charges by plan:

Three Months Ended

Nine Months Ended

Sept. 26,

Sept. 27,

Sept. 26,

Sept. 27,

(In Millions)

2009

2008

2009

2008

2009 restructuring program

$

63

$



$

212

$



2006 efficiency program



34

16

459

Total restructuring and asset impairment charges

$

63

$

34

$

228

$

459

We may incur additional restructuring charges in the future for employee severance and benefit
arrangements, and facility-related or other exit activities.

2009 Restructuring Program

In the first quarter of 2009, management approved plans to restructure some of our manufacturing
and assembly and test operations. These plans include closing two assembly and test facilities in
Malaysia, one facility in the Philippines, and one facility in China; stopping production at a
200mm wafer fabrication facility in Oregon; and ending production at our 200mm wafer fabrication
facility in California. Restructuring and asset impairment charges were as follows:

The following table summarizes the restructuring and asset impairment activity for the 2009
restructuring program during the first nine months of 2009:

Employee

Severance and

Asset

(In Millions)

Benefits

Impairments

Total

Accrued restructuring balance as of December 27, 2008

$



$



$



Additional accruals

208

7

215

Adjustments

(3

)



(3

)

Cash payments

(134

)



(134

)

Non-cash settlements



(7

)

(7

)

Accrued restructuring balance as of September 26, 2009

$

71

$



$

71

We recorded the additional accruals, net of adjustments, as restructuring and asset impairment
charges. The remaining accrual as of September 26, 2009 was related to severance benefits that are
recorded within accrued compensation and benefits.

The net charges above include $205 million that relate to employee severance and benefit
arrangements for approximately 6,500 employees.

2006 Efficiency Program

In the third quarter of 2006, management approved several actions as part of a restructuring plan
designed to improve operational efficiency and financial results. Restructuring and asset
impairment charges were as follows:

Three Months Ended

Nine Months Ended

Sept. 26,

Sept. 27,

Sept. 26,

Sept. 27,

(In Millions)

2009

2008

2009

2008

Employee severance and benefit arrangements

$



$

29

$

8

$

125

Asset impairment charges



5

8

334

Total restructuring and asset impairment charges

$



$

34

$

16

$

459

During the first quarter of 2008, we incurred $275 million in additional asset impairment charges
related to assets that we sold in the second quarter of 2008 in conjunction with the divestiture of
our NOR flash memory business. We determined the impairment charges using the revised fair value of
the equity and note receivable that we received upon completion of the divestiture, less selling
costs. The lower fair value was primarily a result of a decline in the outlook for the flash memory
market segment. We had previously incurred $85 million in asset impairment charges in 2007 related
to assets that we sold in the second quarter of 2008 in conjunction with the divestiture of our NOR
flash memory business. We determined the impairment charges based on the fair value, less selling
costs, that we expected to receive upon completion of the divestiture.

The following table summarizes the restructuring and asset impairment activity for the 2006
efficiency program during the first nine months of 2009:

Employee

Severance and

Asset

(In Millions)

Benefits

Impairments

Total

Accrued restructuring balance as of December 27, 2008

$

57

$



$

57

Additional accruals

18

8

26

Adjustments

(10

)



(10

)

Cash payments

(65

)



(65

)

Non-cash settlements



(8

)

(8

)

Accrued restructuring balance as of September 26, 2009

$



$



$



We recorded the additional accruals, net of adjustments, as restructuring and asset impairment
charges. The 2006 efficiency program is substantially complete as of September 26, 2009.

From the third quarter of 2006 through the third quarter of 2009, we incurred a total of $1.6
billion in restructuring and asset impairment charges related to this plan. These charges included
a total of $686 million related to employee severance and benefit arrangements for approximately
11,300 employees, and $896 million in asset impairment charges.

We have an ongoing authorization from our Board of Directors to borrow up to $3.0 billion,
including through the issuance of commercial paper. Maximum borrowings under our commercial paper
program during the first nine months of 2009 were approximately $610 million, although no
commercial paper remained outstanding as of September 26, 2009.

In 2005, we issued $1.6 billion of junior subordinated convertible debentures (the 2005 debentures)
due in 2035. During the third quarter of 2009, we issued $2.0 billion of junior subordinated
convertible debentures (the 2009 debentures) due in 2039. Both the 2005 and 2009 debentures pay a
fixed rate of interest semiannually. We capitalized all interest associated with these debentures
during the periods presented.

2005 Debentures

2009 Debentures

Coupon interest rate

2.95

%

3.25

%

Effective interest rate1

6.45

%

7.20

%

Maximum amount of contingent interest that will accrue per year2

0.40

%

0.50

%

1

The effective rate is based on the rate for a similar instrument that does not have a conversion feature.

2

Both the 2005 and 2009 debentures have a contingent interest component that will
require us to pay interest based on certain thresholds and for certain events commencing
on December 15, 2010 and August 1, 2019, for the 2005 and 2009 debentures, respectively,
as outlined in the indentures governing the 2005 and 2009 debentures. The fair value of
the related embedded derivative was $27 million and $16 million as of September 26, 2009
for the 2005 and 2009 debentures, respectively ($36 million as of December 27, 2008 for
the 2005 debentures).

Both the 2005 and 2009 debentures are convertible, subject to certain conditions, into shares of
our common stock. Holders can surrender the 2005 debentures for conversion at any time. We can
settle any conversion or repurchase of the 2005 debentures in cash or stock at our option. However,
we will settle any conversion or repurchase of the 2009 debentures in cash up to the face value and
any amount in excess of face value will be settled in cash or stock at our option. On or after
December 15, 2012, we can redeem, for cash, all or part of the 2005 debentures for the principal
amount, plus any accrued and unpaid interest, if the closing price of Intel common stock has been
at least 130% of the conversion price then in effect for at least 20 trading days during any 30
consecutive trading-day period prior to the date on which we provide notice of redemption. On or
after August 5, 2019, we can redeem, for cash, all or part of the 2009 debentures for the principal
amount, plus any accrued and unpaid interest, if the closing price of Intel common stock has been
at least 150% of the conversion price then in effect for at least 20 trading days during any 30
consecutive trading-day period prior to the date on which we provide notice of redemption. If
certain events occur in the future, the indentures governing the 2005 and 2009 debentures provide
that each holder of the debentures can, for a pre-defined period of time, require us to repurchase
the holders debentures for the principal amount plus any accrued and unpaid interest. Both the
2005 and 2009 debentures are subordinated in right of payment to our existing and future senior
debt and to the other liabilities of our subsidiaries. We concluded that both the 2005 and 2009
debentures are not conventional convertible debt instruments and that the embedded stock conversion
options qualify as derivatives. In addition, we have concluded that the embedded conversion options
would be classified in stockholders equity if they were freestanding derivative instruments. As
such, the embedded conversion options are not accounted for separately as derivatives.

2005 Debentures

2009 Debentures

Sept. 26,

Dec. 27,

Sept. 26,

(In Millions, Except Per Share Amounts)

2009

2008

2009

Outstanding Principal

$

1,600

$

1,600

$

2,000

Equity component carrying amount

$

466

$

466

$

613

Unamortized discount1

$

694

$

701

$

955

Net debt carrying amount

$

893

$

886

$

1,028

Conversion rate (shares of common stock per $1,000
principal amount of debentures) 2

32.1175

31.1762

44.0917

Effective conversion price (per share of common stock)

$

31.14

$

31.53

$

22.68

1

The remaining amortization periods for the 2005 and 2009 debentures are
approximately 26 and 30 years, respectively, as of September 26, 2009.

2

The conversion rate adjusts for certain events outlined in the indentures
governing the 2005 and 2009 debentures, such as quarterly dividend distributions in
excess of 10 cents and 14 cents per share, for the 2005 and 2009 debentures,
respectively, but does not adjust for accrued interest. In addition, the conversion rate
will increase for a holder of either the 2005 or 2009 debentures who elects to convert
the debentures in connection with certain share exchanges, mergers, or consolidations
involving Intel, as described in the indentures governing the 2005 and 2009 debentures.

In May 2009, stockholders approved an extension of the 2006 Equity Incentive Plan (the 2006 Plan).
Stockholders approved 134 million additional shares for issuance, increasing the total shares of
common stock available for issuance as equity awards to employees and non-employee directors to 428
million shares. The approval also extended the expiration date of the 2006 Plan to June 2012. The
maximum shares to be awarded as non-vested shares (restricted stock) or non-vested share units
(restricted stock units) were increased to 253 million shares. As of September 26, 2009, 207
million shares remained available for future grant under the 2006 Plan.

In addition, stockholders approved an employee stock option exchange program (Option Exchange). On
September 28, 2009, we commenced the Option Exchange to allow employees (not listed officers) the
opportunity to exchange eligible stock options for a lesser number of new stock options that have
approximately the same fair value as the options surrendered. The exchange offer expired at 8 p.m.
Pacific Time on October 30, 2009. The number of common shares subject to outstanding options will
reduce as a result of the exchange offer. However, as of the date the financial statements were
issued, the impact of the Option Exchange was still being determined. The new stock options granted
as part of the exchange will vest in equal annual increments over a four-year period from date of
grant and expire seven years from the grant date.

In the second quarter of 2009, we began issuing restricted stock units with both a market condition
and a service condition (market-based restricted stock units), which were referred to in our 2009
Proxy Statement as outperformance stock units, to a small group of senior officers. In the third
quarter of 2009, we issued market-based restricted stock units to our non-employee directors. The
number of shares of Intel common stock to be received at vesting will range from 33% to 200% of the
target amount, based on total shareholder return (TSR) on Intel common stock measured against the
benchmark TSR of a peer group over a three year period. TSR is a measure of stock price
appreciation plus any dividends paid in this performance period. As of September 26, 2009, there
were 2 million market-based restricted stock units outstanding. These market-based restricted stock
units accrue dividend equivalents and vest three years and one month from the grant date.

In connection with our completed acquisition of Wind River, we assumed Wind Rivers equity
incentive plans and issued replacement awards in the third quarter of
2009. The stock options and
restricted stock units issued generally retain the terms and conditions of the respective plans
under which they were originally granted. We will not grant additional shares under these plans.

The 2006 Stock Purchase Plan allows eligible employees to purchase shares of our common stock at
85% of the average of the high and low price of our common stock on specific dates. Under the 2006
Stock Purchase Plan, 240 million shares of common stock were made available for issuance through
August 2011. As of September 26, 2009, 157 million shares are available for issuance under the 2006
Stock Purchase Plan.

Share-Based Compensation

Share-based compensation recognized in the third quarter of 2009 was $218 million and $689 million
for the first nine months of 2009 ($197 million in the third quarter of 2008 and $659 million for
the first nine months of 2008).

We estimate the fair value of restricted stock unit awards with time-based vesting using the value
of our common stock on the date of grant, reduced by the present value of dividends expected to be
paid on our common stock prior to vesting. We estimate the fair value of market-based restricted
stock units using a Monte Carlo simulation model on the date of grant. We based the weighted
average estimated values, as well as the weighted average assumptions that we used in calculating
the fair value, on estimates at the date of grant, as follows:

We use the Black-Scholes option pricing model to estimate the fair value of options granted
under our equity incentive plans and rights to acquire stock granted under our stock purchase plan.
We based the weighted average estimated values of employee stock option grants and rights granted
under the stock purchase plan, as well as the weighted average assumptions used in calculating
these values, on estimates at the date of grant, as follows:

Stock Options

Stock Purchase Plan1

Three Months Ended

Nine Months Ended

Three Months Ended

Nine Months Ended

Sept. 26,

Sept. 27,

Sept. 26,

Sept. 27,

Sept. 26,

Sept. 27,

Sept. 26,

Sept. 27,

2009

2008

2009

2008

2009

2008

2009

2008

Estimated values

$

4.40

$

6.10

$

4.72

$

5.82

$

4.56

$

5.50

$

4.14

$

5.32

Expected life (in years)

4.8

4.8

4.9

4.9

.5

.5

.5

.5

Risk free interest rate

2.4

%

3.3

%

1.8

%

2.9

%

0.4

%

1.9

%

0.4

%

2.1

%

Volatility

34

%

36

%

46

%

34

%

33

%

36

%

44

%

35

%

Dividend yield

3.0

%

2.6

%

3.6

%

2.5

%

2.9

%

2.5

%

3.6

%

2.5

%

1

Under the stock purchase plan, rights to purchase shares are only granted during
the first and third quarters of each year.

Restricted Stock Unit Awards

Activity with respect to outstanding restricted stock units for the first nine months of 2009 was
as follows:

Weighted

Average Grant-

Aggregate

Number of

Date Fair

Fair

(In Millions, Except Per Share Amounts)

Shares

Value

Value1

December 27, 2008

67.3

$

20.18

Granted

59.1

$

14.55

Assumed in acquisition

1.6

$

17.52

Vested2

(18.2

)

$

20.09

$

281

Forfeited

(2.8

)

$

18.47

September 26, 2009

107.0

$

17.10

1

Represents the value of Intel common stock on the date that the restricted
stock units vest. On the grant date, the fair value for these vested awards was $366
million.

2

The number of restricted stock units vested includes shares that we withheld on
behalf of employees to satisfy the minimum statutory tax withholding requirements.

Stock Option Awards

Activity with respect to outstanding stock options for the first nine months of 2009 was as
follows:

Weighted

Aggregate

Number of

Average

Intrinsic

(In Millions, Except Per Share Amounts)

Shares

Exercise Price

Value1

December 27, 2008

612.0

$

27.70

Grants

35.1

$

15.55

Assumed in acquisition

9.0

$

15.42

Exercises

(2.0

)

$

14.66

$

9

Cancellations and forfeitures

(23.4

)

$

27.95

Expirations

(33.0

)

$

31.09

September 26, 2009

597.7

$

26.65

Options exercisable as of:

December 27, 2008

517.0

$

28.78

September 26, 2009

506.2

$

27.98

1

Represents the difference between the exercise price and the value of Intel
common stock at the time of exercise.

Employees purchased 30.9 million shares in the first nine months of 2009 (25.9 million shares in
the first nine months of 2008) for $344 million ($453 million in the first nine months of 2008)
under the 2006 Stock Purchase Plan.

Note 20: Common Stock Repurchases

Common Stock Repurchase Program

We have an ongoing authorization, amended in November 2005, from our Board of Directors to
repurchase up to $25 billion in shares of our common stock in open market or negotiated
transactions. As of September 26, 2009, $5.7 billion remained available for repurchase under the
existing repurchase authorization. We utilized the majority of the proceeds from the issuance of
the 2009 debentures to repurchase 88.2 million shares at a cost of $1.7 billion during the third
quarter and the first nine months of 2009. We repurchased 93.4 million shares at a cost of $2.1
billion during the third quarter of 2008 and 324.1 million shares at a cost of $7.1 billion during
the first nine months of 2008. We have repurchased and retired 3.4 billion shares at a cost of
approximately $69 billion since the program began in 1990. Our repurchases in 2009 and a portion of
our repurchases in 2008 were executed in privately negotiated transactions.

Restricted Stock Unit Withholdings

We issue restricted stock units as part of our equity incentive plans. For the majority of
restricted stock units granted, the number of shares issued on the date the restricted stock units
vest is net of the minimum statutory withholding requirements that we pay in cash to the appropriate taxing
authorities on behalf of our employees. During the first nine months of 2009, we withheld 5.3
million shares (3.5 million shares during the first nine months of 2008) to satisfy $81 million
($78 million during the first nine months of 2008) of employees tax obligations. Although shares
withheld are not issued, they are treated as common stock repurchases in our financial statements,
as they reduce the number of shares that would have been issued upon vesting.

Note 21: Earnings Per Share

We computed our basic and diluted earnings per common share as follows:

Three Months Ended

Nine Months Ended

Sept. 26,

Sept. 27,

Sept. 26,

Sept. 27,

(In Millions, Except Per Share Amounts)

2009

2008

2009

2008

Net income available to common shareholders1

$

1,856

$

2,014

$

2,087

$

5,058

Weighted
average common shares outstanding  basic

5,537

5,603

5,568

5,696

Dilutive effect of employee equity incentive plans

28

38

24

43

Dilutive effect of convertible debt

51

51

51

51

Weighted
average common shares outstanding  diluted

5,616

5,692

5,643

5,790

Basic earnings per common share

$

0.34

$

0.36

$

0.37

$

0.89

Diluted earnings per common share

$

0.33

$

0.35

$

0.37

$

0.87

1

Net income available to participating securities was not significant for the third quarter and first nine months of 2009.

We computed our basic earnings per common share using net income available to common shareholders
and the weighted average number of common shares outstanding during the period. We computed diluted
earnings per common share using net income available to common shareholders and the weighted
average number of common shares outstanding plus potentially dilutive common shares outstanding
during the period. Potentially dilutive common shares from employee incentive plans are determined
by applying the treasury stock method to the assumed exercise of outstanding stock options, the
assumed vesting of outstanding restricted stock units, and the assumed issuance of common stock
under the stock purchase plan. Potentially dilutive common shares are determined by applying the
if-converted method for the 2005 debentures. However, as our 2009 debentures requires settlement of
the principal amount of the debt in cash upon conversion, with the conversion premium paid in cash
or stock at our option, potentially dilutive common shares is determined by applying the treasury
stock method for these debentures. For further details on the specific conversion features of our
2005 and 2009 debentures, see Note 18: Borrowings.

For the third quarter of 2009, we excluded 540 million outstanding weighted average stock options
(565 million for the first nine months of 2009) from the calculation of diluted earnings per common
share because the exercise prices of these stock options were greater than or equal to the average
market value of the common shares (462 million for the third quarter of 2008 and 473 million for
the first nine months of 2008). These options could be included in the calculation in the future if
the average market value of the common shares increases and is greater than the exercise price of
these options. We also excluded our 2009 debentures from the calculation of diluted earnings per
common share because the conversion option of these debentures was antidilutive. In the future we
could have potentially dilutive shares if the average market price is above the conversion price.

Our effective income tax rate was 26.7% in the third quarter of 2009 compared to 28.9% in the third
quarter of 2008. The effective tax rate for the third quarter of 2009 was positively impacted
by a higher percentage of our profits being derived from lower-tax jurisdictions compared to the third quarter of 2008
and the U.S R&D income tax credit that was reinstated in the fourth quarter of 2008. The third
quarter of 2009 effective tax rate was negatively impacted by adjustments for differences between
our finalized tax return and the provision recorded, and other adjustments to tax provisions from
prior years, which were partially offset by settlements and effective settlements of various
uncertain tax positions.

Our effective income tax rate for the first nine months of 2009 was 32.9%, compared to 30.9% for
the first nine months of 2008. Based on our analysis, the European Commission (EC) fine recorded in
the second quarter of 2009 is not tax deductible. For further information on the EC fine, see Note
24: Contingencies. The EC fine of $1.447 billion, with no associated reduction in the provision
for taxes, significantly increased our effective tax rate in the first nine months of 2009. The
impact of the EC fine was partially offset by a higher percentage of our profits being derived from
lower-tax jurisdictions compared to the first nine months of 2008 and the U.S. R&D income tax
credit that was reinstated in the fourth quarter of 2008. In addition, the effective tax rate was
also positively impacted by settlements and effective settlements of various uncertain tax
positions, partially offset by adjustments for differences between our finalized tax return and the
provision recorded, and other adjustments to tax provisions from prior years.

Unrecognized Tax Benefits

Our gross unrecognized tax benefits were $377 million as of September 26, 2009 ($744 million as of
December 27, 2008). The decrease in gross unrecognized tax benefits is primarily related to
settlements, effective settlements, and reductions in tax positions taken during prior periods
related to issues settled in U.S. federal, U.S. state, and non-U.S. tax returns.

Although the timing of the resolution and/or closure on audits is highly uncertain, it is
reasonably possible that the balance of gross unrecognized tax benefits could significantly change
in the next 12 months. Given the number of years remaining subject to examination and the number of
matters being examined, we are unable to estimate the full range of possible adjustments to the
balance of gross unrecognized tax benefits. However, we can reasonably expect a minimum reduction
of approximately $200 million of our existing gross unrealized tax benefits upon settlement or
effective settlement with the various tax authorities, the closure of certain audits, and the lapse
of statute of limitations within the next 12 months.

Note 24: Contingencies

Legal Proceedings

We are currently a party to various legal proceedings, including those noted in this section. While
management presently believes that the ultimate outcome of these proceedings, individually and in
the aggregate, will not materially harm the companys financial position, cash flows, or overall
trends in results of operations, legal proceedings are subject to inherent uncertainties, and
unfavorable rulings could occur. An unfavorable ruling could include money damages or, in matters
for which injunctive relief or other conduct remedies are sought, an injunction prohibiting us from
selling one or more products at all or in particular ways. Were unfavorable final outcomes to
occur, there exists the possibility of a material adverse impact on our business, results of
operation, financial position, and overall trends. Except as may be otherwise indicated, the
outcomes in these matters are not reasonably estimable.

A number of proceedings, described below, generally challenge certain of our competitive practices,
contending generally that we improperly condition price rebates and other discounts on our
microprocessors on exclusive or near exclusive dealing by some of our customers. We believe that we
compete lawfully and that our marketing practices benefit our customers and our stockholders, and
we will continue to vigorously defend ourselves. The distractions caused by challenges to our
business practices, however, are undesirable, and the legal and other costs associated with
defending our position have been and continue to be significant. We assume, as should investors,
that these challenges could continue for a number of years and may require the investment of
substantial additional management time and substantial financial resources to explain and defend
our position. While management presently believes that the ultimate outcome of these proceedings,
individually and in the aggregate, will not materially harm the companys financial position, cash
flows, or overall trends in results of operations, these litigation matters and the related
government investigations are subject to inherent uncertainties, and unfavorable rulings could
occur. An unfavorable ruling could include substantial money damages and, in matters in which
injunctive relief or other conduct remedies are sought, an injunction or other order prohibiting us
from selling one or more products at all or in particular ways. Were unfavorable final outcomes to
occur, our business, results of operations, financial position, and overall trends could be
materially harmed.

In June 2005, AMD filed a complaint in the United States District Court for the District of
Delaware alleging that we and our Japanese subsidiary engaged in various actions in violation of
the Sherman Act and the California Business and Professions Code, including, among other things,
providing discounts and rebates to our manufacturer and distributor customers conditioned on
exclusive or near exclusive dealing that allegedly unfairly interfered with AMDs ability to sell
its microprocessors, interfering with certain AMD product launches, and interfering with AMDs
participation in certain industry standards-setting groups. AMDs complaint seeks unspecified
treble damages, punitive damages, an injunction requiring Intel to cease any conduct found to be
unlawful, and attorneys fees and costs. We have answered the complaint, denying the material
allegations and asserting various affirmative defenses. In February 2007, we reported to the Court
that we had discovered certain lapses in our retention of electronic documents. We then stipulated
to a court order requiring us to further investigate and report on those lapses, as well as develop
a plan to remediate the issues. We completed the investigation and provided detailed information to
the Court and AMD throughout 2007 and 2008. The Court also approved our remediation plan, which is
now completed. The Court granted our request for an order to permit discovery against AMD in order
to investigate its retention practices, including potential lapses in AMDs retention of electronic
documents. On October 14, 2009, Intel and AMD both filed motions against the other seeking
sanctions for alleged lapses in the other partys document retention efforts. We anticipate that
the Special Master will rule on those motions in the first quarter of 2010. Discovery closed on
June 12, 2009. The AMD litigation currently is scheduled for trial to commence on March 29, 2010.

AMDs Japanese subsidiary also filed suits in the Tokyo High Court and the Tokyo District Court
against our Japanese subsidiary, asserting violations of Japans Antimonopoly Law and alleging
damages in each suit of approximately $55 million, plus various other costs and fees. Proceedings
in those matters are ongoing.

In addition, at least 82 separate class actions have been filed in the U.S. District Courts for the
Northern District of California, Southern District of California, District of Idaho, District of
Nebraska, District of New Mexico, District of Maine, and District of Delaware, as well as in
various California, Kansas, and Tennessee state courts. These actions generally repeat AMDs
allegations and assert various consumer injuries, including that consumers in various states have
been injured by paying higher prices for computers containing our microprocessors. All of the
federal class actions and the Kansas and Tennessee state court class actions have been consolidated
by the Multidistrict Litigation Panel to the District of Delaware and are being coordinated for
pre-trial purposes with the AMD litigation. The putative class in the coordinated actions has moved
for class certification, which we are in the process of opposing. All California class actions have
been consolidated to the Superior Court of California in Santa Clara County. The plaintiffs in the
California actions have moved for class certification, which we are in the process of opposing. At
our request, the Court in the California actions has agreed to delay ruling on this motion until
after the Delaware Federal Court rules on the similar motion in the coordinated actions.

We dispute AMDs claims and the class-action claims, and intend to defend the lawsuits vigorously.

We are also subject to certain antitrust regulatory inquiries. In 2001, the European Commission
(EC) commenced an investigation regarding claims by AMD that we used unfair business practices to
persuade clients to buy our microprocessors. Since that time, we have received numerous requests
for information and documents from the EC, and we have responded to each of those requests. The EC
issued a Statement of Objections in July 2007 and held a hearing on that Statement in March 2008.
The EC issued a Supplemental Statement of Objections in July 2008.

On May 13, 2009, the EC issued a decision finding that we had violated Article 82 of the EC Treaty
and Article 54 of the European Economic Area (EEA) Agreement. In general, the EC found that we
violated Article 82 by offering alleged conditional rebates and payments that required Intel
customers to purchase all or most of their x86 microprocessors from us. The EC also found that we
violated Article 82 by making alleged payments to prevent sales of specific rival products. The
EC imposed a fine on us in the amount of 1.06 billion ($1.447 billion as of May 13, 2009), which
we subsequently paid during the third quarter of 2009, and also ordered us to immediately bring to
an end the infringement referred to in the EC decision. We strongly disagree with the ECs
decision and we have appealed the decision to the Court of First Instance.

In June 2005, we received an inquiry from the Korea Fair Trade Commission (KFTC) requesting
documents from our Korean subsidiary related to marketing and rebate programs that we entered into
with Korean PC manufacturers. In February 2006, the KFTC initiated an inspection of documents at
our offices in Korea. In September 2007, the KFTC served us an Examination Report alleging that
sales to two customers during parts of 2002-2005 violated Koreas Monopoly Regulation and Fair
Trade Act. In December 2007, we submitted our written response to the KFTC. In February 2008, the
KFTCs examiner submitted a written reply to our response. In March 2008, we submitted a further
response. In April 2008, we participated in a pre-hearing conference before the KFTC, and we
participated in formal hearings in May and June 2008. In June 2008, the KFTC announced its intent
to fine us approximately $25 million for providing discounts to Samsung Electronics Co., Ltd. and
TriGem Computer Inc. On November 7, 2008, the KFTC issued a final written decision concluding that
Intels discounts had violated Korean antitrust law and imposing a fine on Intel of approximately
$20 million, which Intel paid in January 2009. On December 9, 2008, Intel appealed this decision by
filing a lawsuit in the Seoul High Court seeking to overturn the KFTCs decision. The KFTC through
its attorneys filed its answer to Intels complaint in March 2009. Thereafter Intel and the KFTC
will provide arguments to the court in sequential briefs.

In January 2008, we received a
subpoena from the Attorney General of the State of New York
requesting documents and information to assist in its investigation of whether there have been any
agreements or arrangements establishing or maintaining a monopoly in the sale of microprocessors in
violation of federal or New York antitrust laws. The investigation is ongoing and the Attorney Generals
office has recently requested additional meetings with us to discuss various issues. We continue to
cooperate and provide requested information in connection with this investigation.

In June 2008, the U.S. Federal Trade
Commission announced a formal investigation into our sales
practices. The investigation is ongoing and the FTC has recently requested additional information
from and meetings with us regarding various issues. We continue to cooperate
and provide requested information in connection with this
investigation.

We dispute any claims made in these investigations that Intel has acted unlawfully. We intend to
cooperate with and respond to these investigations as appropriate and we expect that these matters
will be acceptably resolved.

Intel/AMD Cross-License Agreement

Intel and AMD entered into a patent cross license on January 1, 2001. Under that license, Intel
granted AMD a limited license to certain Intel patents, subject to the terms of that agreement. On
October 7, 2008, AMD announced its intention to form a joint venture called The Foundry Company
(later renamed to GlobalFoundries Inc.) with two investment entities of the Emirate of Abu Dhabi.
On March 2, 2009, AMD announced that it has closed this transaction. AMD has claimed that
GlobalFoundries is entitled to a license to Intel patents under the 2001 Intel/AMD cross license.
Intel disagrees with that claim. Intel has notified AMD that it has breached the terms of the cross
license, and Intel has initiated the formal dispute resolution process outlined in the cross
license. AMD and Intel have agreed to extend the time period for this process.

In February 2008, Martin Smilow, an Intel stockholder, filed a putative derivative action in the
United States District Court for the District of Delaware against members of our Board of
Directors. The complaint alleges generally that the Board allowed the company to violate antitrust
and other laws, as described in AMDs antitrust lawsuits against us, and that those
Board-sanctioned activities have harmed the company. The complaint repeats many of AMDs
allegations and references various investigations by the European Community, the KFTC, and others.
In February 2008, a second plaintiff, Evan Tobias, filed a derivative suit in the same court
against the Board containing many of the same allegations as in the Smilow suit. On July 30, 2008,
the District Court entered an order directing Smilow and Tobias to file a single, consolidated
complaint by August 7, 2008 and directing us to respond within 30 days thereafter. An amended
consolidated complaint was filed on August 7, 2008. On June 4, 2009, the Court granted the
defendants motion to dismiss the plaintiffs consolidated complaint, with prejudice.

On June 27, 2008, a third plaintiff, Christine Del Gaizo, filed a derivative suit in the Santa
Clara County Superior Court against the Board, a former director of the Board, and six of our
officers, containing many of the same allegations as in the Smilow and Tobias suits. On August 27,
2008, the parties in the California derivative suit entered into a stipulation to stay the action
pending further order of the Court, and the Court entered an order to that effect on September 2,
2008. We deny the allegations and intend to defend the lawsuits vigorously.

In addition to the foregoing proceedings, Intel
subsequently has received demands from two individual stockholders (including Christine Del Gaizo) requesting
that we commence investigations and potentially bring claims against one or more of our directors, officers,
and employees, arising out of the facts and circumstances of the underlying antitrust investigations and
proceedings in the U.S. and foreign jurisdictions. Intel, through its Audit Committee, is in the process
of evaluating these stockholder demands.

In May 2005, Intel filed a lawsuit in the United States District Court for the Northern District of
California against CSIRO, an Australian research institute. CSIRO had sent letters to Intel
customers claiming that products compliant with the IEEE 802.11a and 802.11g standards infringe
CSIROs U.S. Patent No. 5,487,069 (the 069 patent). Intels lawsuit sought a declaration that the
CSIRO patent is invalid and that no Intel product infringes it. Dell Inc. is a co-declaratory
judgment plaintiff with Intel; Microsoft Corporation, Netgear Inc., and Hewlett-Packard Company
filed a similar, separate lawsuit against CSIRO. In its amended answer, CSIRO claimed that various
Intel products that practice the IEEE 802.11a, 802.11g, and/or draft 802.11n standards infringe the
069 patent. In the first quarter of 2009, we entered into a settlement agreement with CSIRO
pursuant to which, among other things, we will make payments to CSIRO in exchange for a license to
certain patents. The settlement agreement did not significantly impact our results of operations or
cash flows.

On August 21, 2008, Saxon Innovations, LLC, filed an action for patent infringement against six
personal computer OEMs, Apple, Gateway, Acer, HP, Dell and ASUS in the U.S. District Court for the
Eastern District of Texas. The asserted patents are U.S. Patent No. 5,592,555, entitled Wireless
Communications Privacy Method and System, U.S. Patent No. 5,502,689, entitled Clock Generator
Capable of Shut-Down Mode and Clock Generation Method, U.S. Patent No. 5,530,597, entitled
Apparatus and Method for Disabling Interrupt Masks in Processors or the Like, U.S. Patent No.
5,247,621, entitled System and Method for Processor Bus Use, U.S. Patent No. 5,235,635, entitled
Keypad Monitor with Keypad Activity-Based Activation. The complaint seeks unspecified damages and
a permanent injunction. In September 2008, Intel filed an unopposed motion to intervene in the
case. In response, Saxon filed a counterclaim against Intel, accusing Intel of infringing the
patents listed above, and asserting two additional patents against
Intel  U.S. Patent No.
5,422,832 entitled Variable Thermal Sensor and U.S. Patent No. 5,829,031 entitled Microprocessor
Configured to Detect a Group of Instructions and to Perform a Specific Function upon
Detection. Intel disputes Saxons claims and intends to defend the lawsuit vigorously.

Intel acquired LightLogic, Inc. in May 2001. Frank Shum has sued Intel, LightLogic, and
LightLogics founder, Jean-Marc Verdiell, claiming that much of LightLogics intellectual property
is based on alleged inventions that Shum conceived while he and Verdiell were partners at Radiance
Design, Inc. Shum has alleged claims for fraud, breach of fiduciary duty, fraudulent concealment,
and breach of contract. Shum also seeks alleged correction of inventorship of seven patents
acquired by Intel as part of the LightLogic acquisition. In January 2005, the U.S. District Court
for the Northern District of California denied Shums inventorship claim, and thereafter granted
Intels motion for summary judgment on Shums remaining claims. In August 2007, the United States
Court of Appeals for the Federal Circuit vacated the District Courts rulings and remanded the case
for further proceedings. In October 2008, the District Court granted Intels motion for summary
judgment on Shums claims for breach of fiduciary duty and fraudulent concealment, but denied
Intels motion on Shums remaining claims. A jury trial on Shums remaining claims took place in
November and December 2008. In pre-trial proceedings and at trial, Shum requested monetary damages
against the defendants in amounts ranging from $31 million to $931 million, and his final request
to the jury was for as much as $175 million. Following deliberations, the jury was unable to reach
a verdict on most of the claims. With respect to Shums claim that he is the proper inventor on
certain LightLogic patents now assigned to Intel, the jury agreed with Shum on some of those
claims. But the jury was unable to reach a verdict on the breach of contract, fraud, or unjust
enrichment claims. On April 30, 2009, the court granted defendants motions for judgment as a
matter of law. Shum has appealed that ruling to the United States Court of Appeals for the Federal
Circuit.

Wisconsin Alumni Research Foundation v. Intel Corporation

On February 5, 2008, the Wisconsin Alumni Research Foundation filed an action for patent
infringement against Intel in the U.S. District Court for the Western District of Wisconsin. The
complaint generally alleged that Intel infringed U.S. Patent No. 5,781,752 by making, using,
offering for sale, importing, and/or selling certain of Intels microprocessors including the
Intel® Coretm2 Duo microarchitecture with Smart Memory Access and
any other microprocessor using the same or a similar memory disambiguation technique. We entered
into a settlement agreement pursuant to which, among other things, we
made a payment to the Wisconsin
Alumni Research Foundation in exchange for a license to certain patents. The settlement agreement
did not significantly impact our results of operations or cash flows in the third quarter of 2009.

The Chief Operating Decision Maker (CODM) is our President and Chief Executive Officer. The CODM
allocates resources to and assesses the performance of each operating
segment using information
about its revenue and operating income (loss).

Mobility Group. Includes microprocessors and related chipsets designed for the
notebook and netbook market segments, wireless connectivity products, and products
designed for the ultra-mobile market segment, which includes various handheld devices.

The NAND Solutions Group, Digital Home Group, Digital Health Group, Software and Services Group,
and Wind River Software Group operating segments do not qualify as reportable segments and are
included within the all other category.

We have sales and marketing, manufacturing, finance, and administration groups. Expenses for these
groups are generally allocated to the operating segments, and the expenses are included in the
operating results reported below. Revenue for the all other category is primarily related to the
sale of NAND flash memory products, software for embedded devices by our Wind River Software Group,
microprocessors and related chipsets by the Digital Home Group, and NOR flash memory products. In
the second quarter of 2008, we completed the divestiture of our NOR flash memory assets to Numonyx.
At that time, we entered into supply and service agreements to provide products, services, and
support to Numonyx following the close of the transaction. Revenue and expenses related to the
supply and service agreements are included in the all other category. For further information on
Numonyx, see Note 10: Equity Method Investments.

In the second quarter of 2009,
we incurred charges of $1.447 billion (1.06 billion) as result of
the fine from the EC. For further information on the EC fine, see Note 24: Contingencies. This charge was included in the all other
category. Additionally, the all other category includes certain corporate-level operating expenses
and charges. These expenses and charges include:



amounts included within restructuring and asset impairment charges;



a portion of profit-dependent compensation and other expenses not allocated to
the operating segments;



results of operations of seed businesses that support our initiatives; and



acquisition-related costs, including amortization and any impairment of
acquisition-related intangibles and goodwill.

The CODM does not evaluate operating segments using discrete asset information. Operating segments
do not record inter-segment revenue, and, accordingly, there is none to be reported. We do not
allocate gains and losses from equity investments, interest and other income, or taxes to operating
segments. Although the CODM uses operating income to evaluate the segments, operating costs
included in one segment may benefit other segments. Except as discussed above, the accounting
policies for segment reporting are the same as for Intel as a whole.

In September 2009, we announced a broad reorganization to better align our business around the core
competencies of Intel Architecture and our manufacturing operations. We are currently in the
process of making these changes to our organization and our systems. Given the scope and size of
the business lines being impacted, this reorganization is expected to be in effect and
reported in our Annual Report on Form 10-K for the year ended December 26, 2009. Under the new
operating structure, our reportable operating segments will include the PC Client Group and Data
Center Group. The PC Client Group will include our mobile and desktop products and the Data Center
Group will include our server and workstation products.

35

ITEM 2.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is
provided in addition to the accompanying consolidated condensed financial statements and notes to
assist readers in understanding our results of operations, financial condition, and cash flows.
MD&A is organized as follows:



Overview. Discussion of our business and overall analysis of financial and
other highlights affecting the company in order to provide context for the remainder of
MD&A.



Strategy. Our overall strategy.



Critical Accounting Estimates. Accounting estimates that we believe are most
important to understanding the assumptions and judgments incorporated in our reported
financial results and forecasts.



Results of Operations. An analysis of our financial results comparing the three
and nine months ended September 26, 2009 to the three and nine months ended September 27,
2008.



Business Outlook. Our expectations for selected financial items for the fourth
quarter of 2009 and the 2009 full year.



Liquidity and Capital Resources. An analysis of changes in our balance sheets
and cash flows, and discussion of our financial condition including the credit quality of
our investment portfolio and potential sources of liquidity.



Fair Value of Financial Instruments. Discussion of the methodologies used in
the valuation of our financial instruments.

The various sections of this MD&A contain a number of forward-looking statements. Words such as
expects, goals, plans, believes, continues, may, will, and variations of such words
and similar expressions are intended to identify such forward-looking statements. In addition, any
statements that refer to projections of our future financial performance, our anticipated growth
and trends in our businesses, and other characterizations of future events or circumstances are
forward-looking statements. Such statements are based on our current expectations and could be
affected by the uncertainties and risk factors described throughout this filing and particularly in
the Business Outlook section (see also Risk Factors in Part II, Item 1A of this Form 10-Q). Our
actual results may differ materially, and these forward-looking statements do not reflect the
potential impact of any divestitures, mergers, acquisitions, or other business combinations that
had not been completed as of November 2, 2009.

Overview

Our goal is to be the preeminent provider of semiconductor chips and platforms for the worldwide
digital economy. Our primary component-level products include microprocessors, chipsets, and flash
memory. Net revenue, gross margin, operating income (loss), and net income (loss) for the second
and third quarters of 2009 and the third quarter of 2008 were as follows:

(In Millions)

Q3 2009

Q2 2009

Q3 2008

Net revenue

$

9,389

$

8,024

$

10,217

Gross margin

$

5,404

$

4,079

$

6,019

Operating income (loss)

$

2,579

$

(12

)

$

3,098

Net income (loss)

$

1,856

$

(398

)

$

2,014

We delivered strong financial results in the third quarter with revenue up 17% and our gross margin
percentage up 7 points from the second quarter. Better than expected demand for microprocessors and
chipsets led to the largest third quarter sequential revenue increase in over 30 years. We saw
growth in all geographies as the recovering global economy was led by consumer demand and continued
replenishment of supply chain inventory. Microprocessors and chipsets designed for notebooks
outpaced the unit growth of our
Intel®
Atom processors and chipsets. Microprocessors and
chipsets designed for notebooks were one of the primary drivers of our revenue growth in the third
quarter and we expect that to continue in the future. The average selling prices for
microprocessors declined slightly compared to the second quarter of 2009, as the mix of
microprocessors sold in this consumer driven recovery have a lower average selling price than the
microprocessors traditionally sold to businesses. Compared to the third quarter of 2008 revenue was
down 8%, an improvement from 15% and 26% year over year declines in the second and first quarters
of 2009 respectively. We expect that revenue in the fourth quarter will increase from the third
quarter in line with seasonal patterns. Our inventories are down $1.3 billion from year end 2008;
however, we do not expect shortages that would impact our revenue outlook.

Our gross margin percentage for the third quarter compared to the second quarter was positively
impacted by higher microprocessor sales volume, lower microprocessor unit costs, lower factory
underutilization charges, and lower startup costs as we transition into production using our 32nm
process technology. These improvements to our gross margin percentage were partially offset by
inventory write-offs of our new 32nm microprocessor products that were not yet qualified for sale.
As we move into the fourth quarter we expect our gross margin percentage to increase further as
32nm products built in the fourth quarter are qualified for sale. In addition, our gross margin
percentage is expected to increase due to higher microprocessor sales volume and lower factory
underutilization charges on increased production.

36

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Our strong third quarter financial results emphasizes that we have the right product offerings in
the marketplace at the right cost. In the third quarter we began volume production using our new
32nm processor technology that features our 2nd generation Hi-k metal gate transistors.
This process technology will allow us to improve upon our microprocessor portfolio by offering
products with increased performance and lower power consumption that cost less to produce. The 32nm
process technology will also allow us to significantly expand our system on chip products offerings
which we believe will help us succeed in our key growth areas.

From a financial condition perspective, we ended the third quarter of 2009 with a high credit
quality investment portfolio of $12.9 billion, consisting of cash and cash equivalents, debt
instruments included in trading assets, and short term investments. During the third quarter of
2009 we generated $4.0 billion in cash from operations despite paying the 1.06 billion ($1.447
billion) European Commission fine recorded in the second quarter of 2009. During the third quarter
we issued $2.0 billion of convertible debt and utilized the
proceeds from the convertible debt to
repurchase $1.7 billion of common stock through our common stock repurchase program. In addition,
during the third quarter we completed the purchase of Wind River
Systems, Inc., returned $771 million to
shareholders through dividends, and paid $944 million for capital assets. We continue to make
significant investment in capital assets to meet our strategic objectives, however, based on
capital reuse and efficiencies, we now estimate that total capital expenditures in 2009 will be
less than depreciation incurred in 2009. In September, our Board of Directors declared a dividend
of $0.14 per common share to be paid in December.

Finally, in September we announced a broad reorganization to better align our business around the
core competencies of Intel Architecture and our manufacturing operations. We are currently in the
process of making these changes to our organization and our systems.

Strategy

Our goal is to be the preeminent provider of semiconductor chips and platforms for the worldwide
digital and Internet connected economy. As part of our overall strategy to compete in each relevant
market segment, we use our core competencies in the design and manufacture of integrated circuits,
as well as our financial resources, global presence, and brand recognition. We believe that we have
the scale, capacity, and global reach to establish new technologies and respond to customers needs
quickly.

Some of our key focus areas are listed below:



Customer Orientation. Our strategy focuses on developing our next generation of
products based on the needs and expectations of our customers. In turn, our products help
enable the design and development of new form factors and usage models for businesses and
consumers. We offer platforms that incorporate various components designed and configured
to work together to provide an optimized user computing solution, compared to components
that are used separately.



Architecture and Platforms. We are developing integrated platform solutions by
moving the memory controller and graphics functionality from the chipset to the
microprocessor. This platform repartitioning is designed to provide improved performance
due to higher integration, lower power consumption, and reduced platform size. In addition,
we are focusing on improved energy-efficient performance for computing and communications
systems and devices. Improved energy-efficient performance involves balancing improved
performance with lower power consumption. We continue to develop multi-core microprocessors
with an increasing number of cores, which can enable improved multitasking and energy
efficient performance by distributing computing tasks across multiple cores.



Silicon and Manufacturing Technology Leadership. Our strategy for developing
microprocessors with improved performance is to synchronize the introduction of a new
microarchitecture with improvements in silicon process technology. We plan to introduce a
new microarchitecture approximately every two years and ramp the next generation of silicon
process technology in the intervening years. This coordinated schedule allows us to develop
and introduce new products based on a common microarchitecture quickly, without waiting for
the next generation of silicon process technology. We refer to this as our tick-tock
technology development cadence.



Strategic Investments. We make equity investments in companies around the world
that we believe will generate financial returns, further our strategic objectives, and
support our key business initiatives. Our investments, including those made through our
Intel Capital program, generally focus on investing in companies and initiatives to
stimulate growth in the digital economy, create new business opportunities for Intel, and
expand global markets for our products. Our current investments primarily focus on the
following areas: advancing flash memory products, enabling mobile wireless devices,
advancing the digital home, enhancing the digital enterprise, advancing high-performance
communications infrastructures, and developing the next generation of silicon process
technologies. Our focus areas and investment activities tend to develop and change over
time due to rapid advancements in technology and changes in the economic climate.

37

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)



Business Environment and Software. We believe that we are well positioned in the
technology industry to help drive innovation, foster collaboration, and promote industry
standards that will yield innovation and improved technologies for users. We plan to continue
to cultivate new businesses and work to encourage the industry to offer products that take
advantage of the latest market trends and usage models. We frequently participate in industry
initiatives designed to discuss and agree upon technical specifications and other aspects of
technologies that could be adopted as standards by standards-setting organizations. In
addition, we work collaboratively with other companies to protect digital content and the
consumer. Through our Software and Services Group (SSG), we help enable and advance the
computing ecosystem by providing development tools and support to help software developers
create software applications and operating systems that take advantage of our platforms.
Through our Wind River Software Group, which we acquired in the third quarter of 2009, we
license software products and provide services that are optimized for the needs of customers
in the embedded and handheld market segments. We believe that the expertise of our Wind River
Software Group in the embedded and handheld market segments will expedite our growth strategy
in these market segments.

We believe that the proliferation of the Internet, including user demand for premium content and
rich media, drives the need for greater performance in PCs and servers. Older PCs are increasingly
incapable of handling the tasks that users demand, such as streaming video, uploading photos, and
online gaming. As these tasks become even more demanding and require more computing power, we
believe that users will need and want to buy new PCs to perform everyday tasks on the Internet. We
also believe that increased Internet traffic and the increasing use of cloud computing, where a
group of linked servers provide a variety of applications and data to users over the Internet,
create a need for greater server infrastructure, including server products optimized for
energy-efficient performance and virtualization.

In September 2009, we announced a broad reorganization to better align our business around the core
competencies of Intel Architecture and our manufacturing operations. We are currently in the
process of making these changes to our organization and our systems. Given the scope and size of
the business lines being impacted, this reorganization is expected to be in effect and
reported in our Annual Report on Form 10-K for the year ended December 26, 2009. Under the new
operating structure, our reportable operating segments will include the PC Client Group and Data
Center Group. The PC Client Group will include our mobile and desktop products and the Data Center
Group will include our server and workstation products.

We believe the trend of mobile microprocessor unit growth outpacing the growth in desktop
microprocessor units will continue. We believe that the demand for mobile microprocessors will
result in the increased development of products with form factors and uses that require low-power
microprocessors. We also believe that these products will result in demand that is incremental to
that of microprocessors designed for notebook and desktop computers, as a growing number of
households have multiple devices for different computing functions. Our silicon and manufacturing
technology leadership allows us to develop low-power microprocessors for these and other new uses
and form factors. We believe that Intel Atom processors give us
the ability to extend Intel architecture and drive growth in new market segments, including a
growing number of products that require processors specifically designed for embedded devices,
handhelds, consumer electronics devices, nettops, and netbooks. We also believe that our Intel
Atom Developer Program, which we expect to spur new applications that run on products using Intel
Atom processors, will expedite our growth strategy in these new market segments. We believe that
the common elements for products in these new market segments are low power consumption and the
ability to access the Internet.

To meet the demands of new and evolving mobile, consumer electronics, and various embedded market
segments, we also offer, and are continuing to develop, System on Chip (SoC) products that
integrate the core processing functionality of our Intel Atom processors with specific components,
such as graphics, audio, and video, onto a single chip. This integration reduces cost, power
consumption, and size. We are collaborating with Taiwan Semiconductor Manufacturing Company, Ltd.
(TSMC), a large semiconductor foundry, in an effort to broaden the market opportunities for Intel
Atom processors in SoC products by integrating our Intel Atom processor cores with TSMCs process
technology platform.

We are also focusing on the development of a new highly scalable, many-core architecture aimed at
parallel processing, the simultaneous use of multiple cores to execute a computing task. This
architecture will initially be used in developing discrete graphics processors designed for gaming
and media creation. Over time, this architecture may be utilized in the development of products for
scientific and professional workstations as well as high-performance computing applications.

38

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Critical Accounting Estimates

The methods, estimates, and judgments that we use in applying our accounting policies have a
significant impact on the results that we report in our financial statements. Some of our
accounting policies require us to make difficult and subjective judgments, often as a result of the
need to make estimates regarding matters that are inherently uncertain. Our most critical
accounting estimates include:



the valuation of non-marketable equity investments and the determination of
other-than-temporary impairments, which impact gains (losses) on equity method investments,
net, or gains (losses) on other equity investments, net when we record impairments;



the valuation of investments in debt instruments and the determination of
other-than-temporary impairments, which impact our investment portfolio balance when we
assess fair value, and interest and other, net when we record other-than-temporary
impairments of available-for-sale debt instruments within earnings;



the assessment of recoverability of long-lived assets, which primarily impacts
gross margin or operating expenses when we record asset impairments or accelerate their
depreciation;



the recognition and measurement of current and deferred income taxes (including
the measurement of uncertain tax positions), which impact our provision for taxes; and



the valuation of inventory, which impacts gross margin.

Below, we discuss these policies further, as well as the estimates and judgments involved. We also
have other policies that we consider key accounting policies, such as those for revenue
recognition, including the deferral of revenue on sales to distributors; however, these policies
typically do not require us to make estimates or judgments that are difficult or subjective.

Non-Marketable Equity Investments

The carrying value of our non-marketable equity investment portfolio, excluding equity derivatives,
totaled $3.5 billion as of September 26, 2009 ($4.1 billion as of December 27, 2008). The majority
of this balance as of September 26, 2009 was concentrated in companies in the flash memory market
segment. Our flash memory market segment investments include our investment in IM Flash
Technologies, LLC (IMFT) of $1.4 billion ($1.7 billion as of December 27, 2008), our investment in
IM Flash Singapore, LLP (IMFS) of $305 million ($329 million as of December 27, 2008), and our
investment in Numonyx B.V. of $438 million ($484 million as of December 27, 2008). In addition, we
regularly invest in non-marketable equity instruments of private companies, which range from
early-stage companies that are often still defining their strategic direction to more mature
companies with established revenue streams and business models. For additional information, see
Note 10: Equity Method Investments in the Notes to Consolidated Condensed Financial Statements of
this Form 10-Q.

Our non-marketable equity investments are recorded using adjusted cost basis or the equity method
of accounting, depending on the facts and circumstances of each investment. Our non-marketable
equity investments are classified in other long-term assets on the consolidated condensed balance
sheets.

Non-marketable equity investments are inherently risky, and a number of the companies in which we
invest are likely to fail. Their success is dependent on product development, market acceptance,
operational efficiency, and other key business factors. Depending on their future prospects, the
companies may not be able to raise additional funds when the funds are needed or they may receive
lower valuations, with less favorable investment terms than in previous financings, and our
investments would likely become impaired. Additionally, financial markets and credit markets are
volatile, which could negatively affect the prospects of the companies we invest in, their ability
to raise additional capital, and the likelihood of our being able to realize value in our
investments through liquidity events such as initial public offerings, mergers, and private sales.
For further information about our investment portfolio risks, see Risk Factors in Part II,
Item 1A of this Form 10-Q.

We measure the fair value of our non-marketable equity investments quarterly for disclosure
purposes; however, the investments are only recorded at fair value when an impairment charge is
recognized. For non-marketable equity investments, the measurement of fair value requires
significant judgment and includes quantitative and qualitative analysis of events or circumstances
identified that impact the fair value of the investment, including:



the investees revenue and earnings trends relative to predefined milestones
and overall business prospects;



the technological feasibility of the investees products and technologies;



the general market conditions in the investees industry or geographic area,
including adverse regulatory or economic changes;



factors related to the investees ability to remain in business, such as the
investees liquidity, debt ratios, and the rate at which the investee is using its cash;
and



the investees receipt of additional funding at a lower valuation.

39

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

If the fair value of an investment is below our carrying value, we determine if the investment is
other than temporarily impaired based on our qualitative and quantitative analysis, which includes
assessing the severity and duration of the impairment. If the investment is considered to be other
than temporarily impaired, we write down the investment to its fair value. With the exception of
Clearwire Communications, LLC (Clearwire LLC), the fair value of our non-marketable investments are
classified as Level 3 when impaired, as we use unobservable inputs to the valuation methodology
that are significant to the fair value measurement, and the valuation requires management judgment
due to the absence of quoted market prices and inherent lack of liquidity. If impaired, the fair
value of our investment in Clearwire LLC would be classified as Level 2, as the unobservable inputs
to the valuation methodology would not be significant to the fair value measurement.

Impairments of non-marketable equity investments were $50 million in the third quarter of 2009
($168 million in the first nine months of 2009). Over the past 12 quarters, including the third
quarter of 2009, impairments of non-marketable equity investments have ranged from $11 million to
$896 million per quarter. This range includes impairments of $896 million during the fourth quarter
of 2008, which were primarily related to a $762 million impairment charge on our investment in
Clearwire LLC.

The following is a discussion of the methods, estimates, and judgments that management uses in our
analysis to determine if our non-marketable equity investments are other than temporarily impaired.

IMFT/IMFS

IMFT and IMFS are variable interest entities that are designed to manufacture and sell NAND
products to Intel and Micron Technology, Inc. at manufacturing cost. Our NAND Solutions Group
operating segment purchases 49% of these NAND products from IMFT and sells them to our
customers. As a result, we generate cash flows from these investments and our intangible assets
related to the NAND product designs through our NAND Solutions Group business. Therefore, we
determine the fair value of our investments in IMFT and IMFS using the income approach, based on a
weighted average of multiple discounted cash flow scenarios of our NAND Solutions Group business.

The discounted cash flow scenarios require the use of unobservable inputs, including assumptions of
projected revenues (based on expectations for product volume, product mix, and average selling
prices), expenses, capital spending, and other costs, as well as a discount rate. Estimates of
projected revenues, expenses, capital spending, and other costs are developed by IMFT, IMFS, and
Intel using historical data and available market data. Management also determines how multiple
discounted cash flow scenarios are weighted in the fair value determination. Additionally, the
development of several inputs used in our income model (such as discount rate) requires the
selection of comparable companies within the NAND flash memory market segment. The selection of
comparable companies requires management judgment and is based on a number of factors, including
NAND products and services lines within the flash memory market segment, comparable companies
sizes, growth rates, and other relevant factors.

Changes in management estimates to the unobservable inputs would change the fair value of the
investments. The estimates for projected revenue and discount rate are the assumptions that most
significantly affect the fair value determination. We did not have an other-than-temporary
impairment on our investments in IMFT and IMFS in the first nine months of 2009 or the first nine
months of 2008. It is reasonably possible that the estimates used in the fair value determination
could change in the near term and result in an impairment of our
investments.

Numonyx

We determine the fair value of our investment in Numonyx using a combination of the income approach
and the market approach. The income approach includes the use of a weighted average of multiple
discounted cash flow scenarios of Numonyx, which requires the use of unobservable inputs, including
assumptions of projected revenues, expenses, capital spending, and other costs, as well as a
discount rate calculated based on the risk profile of the flash memory market segment comparable to
our investment in Numonyx. Estimates of projected revenues, expenses, capital spending, and other
costs are developed by Numonyx and Intel. The market approach includes using financial metrics and
ratios of comparable public companies, such as projected revenues, earnings, and comparable
performance multiples. The selection of comparable companies used in the market approach requires
management judgment and is based on a number of factors, including NOR products and services lines
within the flash memory market segment, comparable companies sizes, growth rates, and other
relevant factors.

40

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Changes in management estimates to the unobservable inputs in our valuation models would change the
fair value of the investment. The estimated projected revenue is the assumption that most
significantly affects the fair value determination. Management judgment is also involved in
determining how the income approach and the market approach are weighted in the fair value
determination. We did not have an other-than-temporary impairment on our investment in Numonyx in
the first nine months of 2009. We recorded a $250 million impairment charge on our investment in
Numonyx during the third quarter of 2008 to write down our investment to its fair value. Estimates
for revenue, earnings, and future cash flows were revised lower due to a general decline in the NOR
flash memory market segment. It is reasonably possible that the estimates used in the fair value
determination could change in the near term and result in an
additional impairment of our investment.

Other Non-Marketable Equity Investments

We determine the fair value of these non-marketable equity investments using the market approach
and/or the income approach. The market approach includes the use of financial metrics and ratios of
comparable public companies. The selection of comparable companies requires management judgment and
is based on a number of factors, including comparable companies sizes, growth rates, industries,
development stages, and other relevant factors. The income approach includes the use of a
discounted cash flow model, which requires the following significant estimates for the investee:
revenue, based on assumed market segment size and assumed market segment share; estimated costs;
and appropriate discount rates based on the risk profile of comparable companies. Estimates of
market segment size, market segment share, and costs are developed by the investee and/or Intel
using historical data and available market data. The valuation of our other non-marketable
investments also takes into account movements of the public equity and venture capital markets,
recent financing activities by the investees, changes in the interest rate environment, the
investees capital structure, differences in seniority and preferences for instruments issued by
investees, and other economic variables.

Investments in Debt Instruments

Fair Value

The assessment of the fair value of debt instruments can be difficult and subjective. Changes
occurring in financial markets can lead to changes in the fair value of financial instruments in
relatively short periods of time. There are three levels of inputs that may be used to measure fair
value (see Note 4: Fair Value in the Notes to Consolidated Condensed Financial Statements of this
Form 10-Q). Each level of input has different levels of subjectivity and difficulty involved in
determining fair value.

Level 2 instruments include observable inputs other than Level 1 prices, such as quoted prices for
identical instruments in markets with insufficient volume or infrequent transactions (less active
markets), issuer credit ratings, non-binding market consensus prices that can be corroborated with
observable market data, model-derived valuations in which all significant inputs are observable or
can be derived principally from or corroborated with observable market data for substantially the
full term of the assets or liabilities, or quoted prices for similar assets or liabilities. These
Level 2 instruments require more management judgment and subjectivity compared to Level 1
instruments, including:



Determining which instruments are most similar to the instrument being priced requires
management to identify a sample of similar securities based on the coupon rates, maturity,
issuer, credit rating, and instrument type, and subjectively select an individual security
or multiple securities that are deemed most similar to the security being priced.



Determining whether a market is considered active requires management judgment. Our
assessment of an active market for our marketable debt instruments generally takes into
consideration activity during each week of the one-month period prior to the valuation date
of each individual instrument, including the number of days each individual instrument
trades and the average weekly trading volume in relation to the total outstanding amount of
the issued instrument.



Determining which model-derived valuations to use in determining fair value requires
management judgment. When observable market prices for identical securities or similar
securities are not available, we price our marketable debt instruments using non-binding
market consensus prices that are corroborated with observable market data or pricing
models, such as discounted cash flow models, with all significant inputs derived from or
corroborated with observable market data.

41

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Level 3 instruments include unobservable inputs to the valuation methodology that are significant
to the measurement of fair value of assets or liabilities. The determination of fair value for
Level 3 instruments requires the most management judgment and subjectivity. Most of our marketable
debt instruments classified as Level 3 are valued using a non-binding market consensus price or a
non-binding broker quote, both of which we corroborate with unobservable data. Non-binding market
consensus prices are based on the proprietary valuation models of pricing providers or brokers.
These valuation models incorporate a number of inputs, including non-binding and binding broker
quotes; observable market prices for identical and/or similar securities; and the internal
assumptions of pricing providers or brokers that use observable market inputs, and to a lesser
degree non-observable market inputs. Adjustments to the fair value of instruments priced using
non-binding market consensus prices and non-binding broker quotes, and classified as Level 3, were
not significant in the third quarter of 2009.

Other-Than-Temporary Impairment

After determining the fair value of our available-for-sale debt instruments, gains or losses on
these investments are recorded to other comprehensive income (loss), until either the investment is
sold or we determine that the decline in value is other-than-temporary. Determining whether the
decline in fair value is other-than-temporary requires management judgment based on the specific
facts and circumstances of each investment. For investments in debt instruments, these judgments
primarily consider the financial condition and liquidity of the issuer, the issuers credit rating,
and any specific events that may cause us to believe that the debt instrument will not mature and
be paid in full; if we have the intent to sell the investment; and if it is more likely than not
that we will be required to sell an investment that has unrealized losses in accumulated other
comprehensive income before we recover the amortized cost basis. Given changing market conditions,
we may recognize other-than-temporary impairments on these investments in the future.

For available-for-sale debt instruments that are considered other-than-temporarily impaired and
that we do not intend to sell and will not be required to sell prior to recovery of our amortized
cost basis, we separate the amount of the impairment into the amount that is credit related and the
amount due to all other factors. The credit loss component is recognized in earnings and is the
difference between the debt instruments amortized cost basis and the present value of its expected
future cash flows. The remaining difference between the debt instruments fair value and the
present value of future expected cash flows is due to factors that are not credit related and is
recognized in other comprehensive income.

As of September 26, 2009, our investments included $12.2 billion of available-for-sale debt
instruments. We have recognized less than $55 million of credit-related other-than-temporary
impairment losses in earnings on our available-for-sale debt instruments cumulatively since the
beginning of 2008. As of September 26, 2009, our cumulative unrealized losses related to debt
instruments classified as available-for-sale were approximately $90 million (approximately $215
million as of December 27, 2008). As of September 26, 2009, this amount included approximately $35
million of unrecognized losses that could be recognized in the future.

Long-Lived Assets

We assess the impairment of long-lived assets when events or changes in circumstances indicate that
the carrying value of the assets or the asset grouping may not be recoverable. Factors that we
consider in deciding when to perform an impairment review include significant under-performance of
a business or product line in relation to expectations, significant negative industry or economic
trends, and significant changes or planned changes in our use of the assets. We measure the
recoverability of assets that will continue to be used in our operations by comparing the carrying
value of the asset grouping to our estimate of the related total future undiscounted net cash
flows. If an asset groupings carrying value is not recoverable through the related undiscounted
cash flows, the asset grouping is considered to be impaired. The impairment is measured by
comparing the difference between the asset groupings carrying value and its fair value. Fair value
is the price that would be received from selling an asset in an orderly transaction between market
participants at the measurement date. Long-lived assets such as goodwill; intangible assets; and
property, plant and equipment are considered non-financial assets, and are recorded at fair value
only when an impairment charge is recognized.

Impairments of long-lived assets are determined for groups of assets related to the lowest level of
identifiable independent cash flows. Due to our asset usage model and the interchangeable nature of
our semiconductor manufacturing capacity, we must make subjective judgments in determining the
independent cash flows that can be related to specific asset groupings. In addition, as we make
manufacturing process conversions and other factory planning decisions, we must make subjective
judgments regarding the remaining useful lives of assets, primarily process-specific semiconductor
manufacturing tools and building improvements. When we determine that the useful lives of assets
are shorter than we had originally estimated, we accelerate the rate of depreciation over the
assets new, shorter useful lives. Over the past 12 quarters, including the third quarter of 2009,
impairments and accelerated depreciation of long-lived assets ranged from $40 million to $320
million per quarter. For further discussion on asset impairment charges, see Note 17:
Restructuring and Asset Impairment Charges in the Notes to Consolidated Condensed Financial
Statements of this Form 10-Q.

42

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Income Taxes

We must make certain estimates and judgments in determining income tax expense for financial
statement purposes. These estimates and judgments occur in the calculation of tax credits,
benefits, and deductions, and in the calculation of certain tax assets and liabilities, which arise
from differences in the timing of recognition of revenue and expense for tax and financial
statement purposes, as well as the interest and penalties related to uncertain tax positions.
Significant changes to these estimates may result in an increase or decrease to our tax provision
in a subsequent period.

We must assess the likelihood that we will be able to recover our deferred tax assets. If recovery
is not likely, we must increase our provision for taxes by recording a valuation allowance against
the deferred tax assets that we estimate will not ultimately be recoverable. We believe that we
will ultimately recover a majority of the deferred tax assets recorded on our consolidated
condensed balance sheets. However, should there be a change in our ability to recover our deferred
tax assets, our tax provision would increase in the period in which we determined that the recovery
was not likely. Changes in managements plans with respect to holding or disposing of investments
could affect our future provision for taxes.

The calculation of our tax liabilities involves dealing with uncertainties in the application of
complex tax regulations. We recognize liabilities for uncertain tax positions based on a two-step
process. The first step is to evaluate the tax position for recognition by determining if the
weight of available evidence indicates that it is more likely than not that the position will be
sustained on audit, including resolution of related appeals or litigation processes, if any. If we
determine that a tax position will more likely than not be sustained on audit, the second step
requires us to estimate and measure the tax benefit as the largest amount that is more than 50%
likely to be realized upon ultimate settlement. It is inherently difficult and subjective to
estimate such amounts, as we have to determine the probability of various possible outcomes. We
reevaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors
including, but not limited to, changes in facts or circumstances, changes in tax law, effectively
settled issues under audit, and new audit activity. Our gross unrecognized tax benefits were $377
million as of September 26, 2009. It is reasonably possible that the balance of gross unrecognized
tax benefits could significantly change in the next 12 months. Such a change in recognition or
measurement would result in the recognition of a tax benefit or an additional charge to the tax
provision. Given the number of years remaining subject to examination and the number of matters
being examined, we are unable to estimate the full range of possible adjustments to the balance of
gross unrecognized tax benefits. However, we can reasonably expect a minimum reduction of
approximately $200 million of our existing gross unrealized tax benefits upon settlement or
effective settlement with the various tax authorities, the closure of certain audits, and the lapse
of statute of limitations within the next 12 months.

Inventory

The valuation of inventory requires us to estimate obsolete or excess inventory as well as
inventory that is not of saleable quality. The determination of obsolete or excess inventory
requires us to estimate the future demand for our products. The estimate of future demand is
compared to work in process and finished goods inventory levels to determine the amount, if any, of
obsolete or excess inventory. As of September 26, 2009, we had total work-in-process inventory of
$1,072 million and total finished goods inventory of $1,020 million. The demand forecast is
included in the development of our short-term manufacturing plans to enable consistency between
inventory valuation and build decisions. Product-specific facts and circumstances reviewed in the
inventory valuation process include a review of the customer base, the stage of the product life
cycle of our products, consumer confidence, and customer acceptance of our products, as well as an
assessment of the selling price in relation to the product cost. If our demand forecast for
specific products is greater than actual demand and we fail to reduce manufacturing output
accordingly, or if we fail to forecast the demand accurately, we could be required to write off
inventory, which would negatively impact our gross margin. In order to determine what costs can be
included in the valuation of inventory we must determine normal capacity at our manufacturing and
assembly and test facilities. If the factory loadings are below normal capacity a portion of our
manufacturing overhead costs will not be included in the cost of inventory, and therefore, will be
recognized as cost of sales in that period, which negatively impacts our gross margin.

Accounting Changes and Recent Accounting Standards

For a description of accounting changes and recent accounting standards, including the expected
dates of adoption and estimated effects, if any, on our consolidated condensed financial
statements, see Note 2: Accounting Changes and Note 3: Recent Accounting Standards in the Notes
to Consolidated Condensed Financial Statements of this Form 10-Q.

43

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Results of Operations - Third Quarter of 2009 Compared to Third Quarter of 2008

The following table sets forth certain consolidated condensed statements of operations data as a
percentage of net revenue for the periods indicated:

Q3 2009

Q3 2008

% of Net

% of Net

(Dollars in Millions, Except Per Share Amounts)

Dollars

Revenue

Dollars

Revenue

Net revenue

$

9,389

100.0

%

$

10,217

100.0

%

Cost of sales

3,985

42.4

%

4,198

41.1

%

Gross margin

5,404

57.6

%

6,019

58.9

%

Research and development

1,430

15.2

%

1,471

14.4

%

Marketing, general and administrative

1,320

14.1

%

1,415

13.9

%

Restructuring and asset impairment charges

63

0.7

%

34

0.3

%

Amortization of acquisition-related intangibles and costs

12

0.1

%

1



%

Operating income

2,579

27.5

%

3,098

30.3

%

Gains (losses) on equity method investments, net

(59

)

(0.6

)%

(365

)

(3.6

)%

Gains (losses) on other equity investments, net

(20

)

(0.2

)%

(31

)

(0.3

)%

Interest and other, net

32

0.3

%

131

1.3

%

Income before taxes

2,532

27.0

%

2,833

27.7

%

Provision for taxes

676

7.2

%

819

8.0

%

Net income

$

1,856

19.8

%

$

2,014

19.7

%

Diluted earnings per common share

$

0.33

$

0.35

The following table sets forth information of geographic regions for the periods indicated:

Q3 2009

Q3 2008

(Dollars In Millions)

Revenue

% of Total

Revenue

% of Total

Asia-Pacific

$

5,322

57

%

$

5,389

53

%

Americas

1,822

19

%

1,887

19

%

Europe1

1,328

14

%

1,883

18

%

Japan

917

10

%

1,058

10

%

Total

$

9,389

100

%

$

10,217

100

%

1

Region includes Europe, the Middle East, and Africa.

Our net revenue for Q3 2009 decreased 8% compared to Q3 2008. The majority of our microprocessor
and chipset products had unit sale decreases compared to Q3 2008. However, with the ramp of Intel
Atom processors and chipsets, overall microprocessor and chipset units were flat. Average selling
prices for microprocessors and chipsets decreased compared to Q3 2008 primarily due to the ramp of
Intel Atom processors and chipsets, which generally have lower average selling prices than our
other microprocessor and chipset products. In addition, a decrease in average selling prices for
microprocessors within the Mobility Group operating segment was partially offset by an increase in
average selling prices for enterprise microprocessors within the Digital Enterprise Group operating
segment. Declines in revenue from the sale of communication products, primarily as a result of
prior divestitures, and from the sale of wireless connectivity products were offset by an increase
in revenue from the sale of NAND flash memory products.

Revenue in the Europe, Japan, and Americas regions decreased by 29%, 13%, and 3%, respectively
compared to Q3 2008, while revenue in the Asia-Pacific region was flat compared to Q3 2008.

Our overall gross margin dollars for Q3 2009 decreased $615 million, or 10%, compared to Q3 2008.
Our overall gross margin percentage decreased to 57.6% in Q3 2009, from 58.9% in Q3 2008. The
decrease in gross margin percentage was primarily attributable to the gross margin percentage
decrease in the Mobility Group operating segment. This was partially offset by the gross margin
percentage increase in the NAND Solutions Group operating segment. We derived the substantial
majority of our overall gross margin dollars in Q3 2009 and most of our overall gross margin
dollars in Q3 2008 from the sales of microprocessors in the Digital Enterprise Group and Mobility
Group operating segments. See Business Outlook for a discussion of gross margin expectations.

44

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Digital Enterprise Group

The revenue and operating income for the Digital Enterprise Group (DEG) operating segment for Q3
2009 and Q3 2008 were as follows:

(In Millions)

Q3 2009

Q3 2008

Microprocessor revenue

$

3,873

$

4,069

Chipset, motherboard, and other revenue

1,040

1,249

Net revenue

$

4,913

$

5,318

Operating income

$

1,512

$

1,766

Net revenue for the DEG operating segment decreased by $405 million, or 8%, in Q3 2009 compared to
Q3 2008. Microprocessors within DEG include microprocessors designed for the desktop and enterprise
computing market segments as well as embedded microprocessors. The decrease in microprocessor
revenue was primarily due to lower unit sales. Higher enterprise average selling prices were
partially offset by lower desktop average selling prices. The decrease in chipset, motherboard, and
other revenue was due to lower chipset average selling prices, lower revenue from the sale of
communications products, and to a lesser extent, lower motherboard unit sales.

Operating income decreased by $254 million, or 14%, in Q3 2009 compared to Q3 2008. The decrease in
operating income was primarily due to lower revenue. In addition, during the third quarter of 2009
we recorded approximately $60 million of factory underutilization charges, primarily relating to
microprocessors.

Mobility Group

The revenue and operating income for the Mobility Group (MG) operating segment for Q3 2009 and Q3
2008 were as follows:

(In Millions)

Q3 2009

Q3 2008

Microprocessor revenue

$

2,924

$

3,387

Chipset and other revenue

1,207

1,294

Net revenue

$

4,131

$

4,681

Operating income

$

1,350

$

1,851

Net revenue for the MG operating segment decreased by $550 million, or 12%, in Q3 2009 compared to
Q3 2008. The decrease in microprocessor revenue was due to lower microprocessor average selling
prices, partially offset by higher microprocessor unit sales. The increase in unit sales and a
significant portion of the decrease in average selling prices were due to the ramp of Intel Atom
processors. The decrease in chipset and other revenue was primarily due to lower revenue from the
sale of wireless connectivity products.

Operating income decreased by $501 million, or 27%, in Q3 2009 compared to Q3 2008. The decrease
was primarily due to lower microprocessor revenue. In addition, inventory write-offs of our new
32nm microprocessor products not yet qualified for sale and approximately $70 million of factory
underutilization charges recorded during the third quarter of 2009 decreased our operating income.
These decreases were primarily offset by lower chipset unit costs and lower operating expenses.

45

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Operating Expenses

Operating expenses for Q3 2009 and Q3 2008 were as follows:

(In Millions)

Q3 2009

Q3 2008

Research and development

$

1,430

$

1,471

Marketing, general and administrative

$

1,320

$

1,415

Restructuring and asset impairment charges

$

63

$

34

Amortization of acquisition-related intangibles and costs

$

12

$

1

Research and Development. R&D spending decreased slightly by $41 million, or 3%, in Q3 2009
compared to Q3 2008 primarily due to lower product development costs.

Marketing, General and Administrative. Marketing, general and administrative expenses decreased
$95 million, or 7%, in Q3 2009 compared to Q3 2008. Advertising expenses, including cooperative
advertising expenses, were lower in Q3 2009 compared to Q3 2008. This was partially offset by
expenses related to our Wind River Software Group operating segment.

R&D, combined with marketing, general and administrative expenses, were 29% of net revenue in Q3
2009 (28% of net revenue in Q3 2008).

Restructuring and Asset Impairment Charges. The following table summarizes restructuring and asset
impairment charges by plan for Q3 2009 and Q3 2008:

(In Millions)

Q3 2009

Q3 2008

2009 restructuring program

$

63

$



2006 efficiency program



34

Total restructuring and asset impairment charges

$

63

$

34

See Managements Discussion and Analysis of Financial Condition and Results of Operations First
nine months of 2009 compared to first nine months of 2008 of this Form 10-Q for further
discussion.

Amortization of acquisition-related intangibles and costs. The increase of $11 million was due to
amortization of intangibles and costs related to the acquisition of Wind River
completed in the third quarter of 2009. See Note 14: Acquisitions in the Notes to Consolidated
Condensed Financial Statements of this Form 10-Q.

Gains (Losses) on Equity Method Investments, Net

Gains (losses) on equity method investments, net were as follows:

(In Millions)

Q3 2009

Q3 2008

Equity method losses, net

$

(41

)

$

(120

)

Impairment charges

(19

)

(257

)

Other, net

1

12

Total gains (losses) on equity method investments, net

$

(59

)

$

(365

)

We recognized lower impairment charges and lower equity method losses in Q3 2009 compared to Q3
2008. Impairment charges in Q3 2008 were primarily related to a $250 million impairment charge
recognized on our investment in Numonyx. Equity method losses were lower in Q3 2009 compared to Q3
2008 primarily due to approximately $60 million of lower losses related to Numonyx.

46

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Gains (Losses) on Other Equity Investments, Net

Gains (losses) on other equity investments, net were as follows:

(In Millions)

Q3 2009

Q3 2008

Impairment charges

$

(31

)

$

(55

)

Gains on sales

6

15

Other, net

5

9

Total gains (losses) on other equity investments, net

$

(20

)

$

(31

)

We recognized lower impairment charges on marketable equity securities in Q3 2009 compared to Q3
2008, partially offset by higher impairment charges on our non-marketable equity investments and
lower gains on sales. Impairment charges in the third quarter of 2008 included a $25 million
impairment charge on our investment in Micron.

Interest and Other, Net

The components of interest and other, net were as follows:

(In Millions)

Q3 2009

Q3 2008

Interest income

$

34

$

126

Interest expense





Other, net

(2

)

5

Total interest and other, net

$

32

$

131

We recognized lower interest income in Q3 2009 compared to Q3 2008 due to lower interest rates. The
average interest rate earned during Q3 2009 decreased by approximately 2.3 percentage points
compared to Q3 2008. Lower gains on divestitures (none in Q3 2009 and $20 million in Q3 2008) were
mostly offset by lower fair value losses on our trading assets.

Provision for Taxes

Our provision for taxes and effective tax rate were as follows:

(Dollars in Millions)

Q3 2009

Q3 2008

Income before taxes

$

2,532

$

2,833

Provision for taxes

$

676

$

819

Effective tax rate

26.7

%

28.9

%

The
effective tax rate for Q3 2009 was positively impacted by a higher
percentage of our profits being derived from
lower-tax jurisdictions compared to Q3 2008 and the U.S R&D income tax credit that was reinstated
in Q4 2008. The Q3 2009 effective tax rate was negatively impacted by adjustments for differences
between our finalized tax return and the provision recorded, and other adjustments to tax
provisions from prior years, which were partially offset by settlements and effective settlements
of various uncertain tax positions.

47

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Results of Operations - First Nine Months of 2009 Compared to First Nine Months of 2008

The following table sets forth certain consolidated condensed statements of operations data as a
percentage of net revenue for the periods indicated:

YTD 2009

YTD 2008

% of Net

% of Net

(Dollars in Millions, Except Per Share Amounts)

Dollars

Revenue

Dollars

Revenue

Net revenue

$

24,558

100.0

%

$

29,360

100.0

%

Cost of sales

11,837

48.2

%

12,885

43.9

%

Gross margin

12,721

51.8

%

16,475

56.1

%

Research and development

4,050

16.5

%

4,406

15.0

%

Marketing, general and administrative

5,213

21.2

%

4,191

14.3

%

Restructuring and asset impairment charges

228

0.9

%

459

1.5

%

Amortization of acquisition-related intangibles and costs

16

0.1

%

4



%

Operating income

3,214

13.1

%

7,415

25.3

%

Gains (losses) on equity method investments, net

(175

)

(0.7

)%

(460

)

(1.6

)%

Gains (losses) on other equity investments, net

(86

)

(0.3

)%

(104

)

(0.4

)%

Interest and other, net

158

0.6

%

466

1.6

%

Income before taxes

3,111

12.7

%

7,317

24.9

%

Provision for taxes

1,024

4.2

%

2,259

7.7

%

Net income

$

2,087

8.5

%

$

5,058

17.2

%

Diluted earnings per common share

$

0.37

$

0.87

The following table sets forth information of geographic regions for the periods indicated:

YTD 2009

YTD 2008

(Dollars In Millions)

Revenue

% of Total

Revenue

% of Total

Asia-Pacific

$

13,378

54

%

$

14,982

51

%

Americas

5,030

21

%

5,888

20

%

Europe1

3,754

15

%

5,487

19

%

Japan

2,396

10

%

3,003

10

%

Total

$

24,558

100

%

$

29,360

100

%

1

Region includes Europe, the Middle East, and Africa.

Our net revenue for the first nine months of 2009 decreased 16% compared to the first nine months
of 2008. The majority of our microprocessor and chipset products had unit sale decreases compared
to the first nine months of 2008. However, the ramp of Intel Atom processors and chipsets offset
the majority of the decrease in overall microprocessor and chipset units. In addition, average
selling prices for microprocessors and chipsets decreased compared to the first nine months of 2008
due to the ramp of Intel Atom processors and chipsets, which generally have lower average selling
prices than our other microprocessor and chipset products. Revenue from the sale of NOR flash
memory products and communication products declined approximately $660 million, primarily as a
result of the divestiture of these businesses. Additionally, revenue from the sale of wireless
connectivity products declined.

Revenue in the Europe, Japan, Americas, and Asia-Pacific regions decreased by 32%, 20%, 15%, and
11%, respectively compared to the first nine months of 2008.

Our overall gross margin dollars for the first nine months of 2009 decreased $3.8 billion, or 23%,
compared to the first nine months of 2008. Our overall gross margin percentage decreased to 51.8%
in the first nine months of 2009, from 56.1% in the first nine months of 2008. The decrease in
gross margin percentage was primarily attributable to the gross margin percentage decrease in the
Mobility Group and Digital Enterprise Group operating segments. This was partially offset by the
gross margin percentage increase in the NAND Solutions Group operating segment. We derived most of
our overall gross margin dollars in the first nine months of 2009 and 2008 from the sales of
microprocessors in the Digital Enterprise Group and Mobility Group operating segments. See
Business Outlook for a discussion of gross margin expectations.

The results for the first nine months of 2009 include a charge of $1.447 billion incurred as a
result of the fine imposed by the European Commission (see Note 24: Contingencies in the Notes to
Consolidated Condensed Financial Statements of this Form 10-Q). The charge is included as part of
marketing, general and administrative expense.

48

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Digital Enterprise Group

The revenue and operating income for the Digital Enterprise Group (DEG) operating segment for the
first nine months of 2009 and the first nine months of 2008 were as follows:

(In Millions)

YTD 2009

YTD 2008

Microprocessor revenue

$

10,549

$

12,413

Chipset, motherboard, and other revenue

2,677

3,719

Net revenue

$

13,226

$

16,132

Operating income

$

3,115

$

5,238

Net revenue for the DEG operating segment decreased by $2.9 billion, or 18%, in the first nine
months of 2009 compared to the first nine months of 2008. Microprocessors within DEG include
microprocessors designed for the desktop and enterprise computing market segments as well as
embedded microprocessors. The decrease in microprocessor revenue was primarily due to lower unit
sales. Total average selling prices within the DEG operating segment were flat as higher enterprise
average selling prices were offset by both lower desktop average selling prices and a lower mix of
enterprise microprocessor units. The decrease in chipset, motherboard, and other revenue was due to
lower chipset unit sales and average selling prices, and to a lesser extent, lower revenue from the
sale of communications products and lower motherboard unit sales.

Operating income decreased by $2.1 billion, or 41%, in the first nine months of 2009 compared to
the first nine months of 2008. The decrease in operating income was primarily due to the lower
revenue. In addition, during the first nine months of 2009 we recorded approximately $420 million
of factory underutilization charges.

Mobility Group

The revenue and operating income for the Mobility Group (MG) operating segment for the first nine
months of 2009 and the first nine months of 2008 were as follows:

(In Millions)

YTD 2009

YTD 2008

Microprocessor revenue

$

7,666

$

8,855

Chipset and other revenue

2,860

3,292

Net revenue

$

10,526

$

12,147

Operating income

$

2,413

$

4,269

Net revenue for the MG operating segment decreased by $1.6 billion, or 13%, in the first nine
months of 2009 compared to the first nine months of 2008. The decrease in microprocessor revenue
was primarily due to lower microprocessor average selling prices, partially offset by higher
microprocessor unit sales. The increase in unit sales and a majority of the decrease in average
selling prices were due to the ramp of Intel Atom processors. The decrease in chipset and other
revenue was primarily due to lower unit sales of wireless
connectivity products, and to a lesser
extent, lower chipset average selling prices.

Operating income decreased by $1.9 billion, or 43%, in the first nine months of 2009 compared to
the first nine months of 2008. The decrease was primarily due to lower microprocessor and chipset
revenue and approximately $710 million of factory underutilization charges recorded during the
first nine months of 2009. In addition, lower chipset and microprocessor unit costs were offset by
approximately $190 million of higher start-up costs as well as inventory write-offs of our new 32nm
microprocessor products not yet qualified for sale.

Operating Expenses

Operating expenses for the first nine months of 2009 and the first nine months of 2008 were as
follows:

(In Millions)

YTD 2009

YTD 2008

Research and development

$

4,050

$

4,406

Marketing, general and administrative

$

5,213

$

4,191

Restructuring and asset impairment charges

$

228

$

459

Amortization of acquisition-related intangibles and costs

$

16

$

4

Research and Development. R&D spending decreased $356 million, or 8%, in the first nine months of
2009 compared to the first nine months of 2008. This decrease was primarily due to lower process
development costs as we transitioned from research and development to manufacturing using our 32nm
manufacturing process technology.

49

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Marketing, General and Administrative. Marketing, general and administrative expenses increased
$1.0 billion, or 24%, in the first nine months of 2009 compared to the first nine months of 2008.
This increase was due to the Q2 2009 charge of $1.447 billion incurred as a result of the fine
imposed by the EC (see Note 24: Contingencies in the Notes to Consolidated Condensed Financial
Statements of this Form 10-Q). This increase was partially offset by lower advertising expenses,
including cooperative advertising expenses.

R&D, combined with marketing, general and administrative expenses, were 38% of net revenue in the
first nine months of 2009 (29% of net revenue in the first nine months of 2008). The EC fine was 6%
of net revenue in the first nine months of 2009.

Restructuring and Asset Impairment Charges. The following table summarizes restructuring and asset
impairment charges by plan for the first nine months of 2009 and the first nine months of 2008:

(In Millions)

YTD 2009

YTD 2008

2009 restructuring program

$

212

$



2006 efficiency program

16

459

Total restructuring and asset impairment charges

$

228

$

459

We may incur additional restructuring charges in the future for employee severance and benefit
arrangements, and facility-related or other exit activities. Our outlook for the fourth quarter of
2009 is for additional restructuring and asset impairment charges of $40 million.

2009 Restructuring Program

In the first quarter of 2009, management approved plans to restructure some of our manufacturing
and assembly and test operations. These plans include closing two assembly and test facilities in
Malaysia, one facility in the Philippines, and one facility in China; stopping production at a
200mm wafer fabrication facility in Oregon; and ending production at our 200mm wafer fabrication
facility in California. Restructuring and asset impairment charges were as follows:

(In Millions)

YTD 2009

YTD 2008

Employee severance and benefit arrangements

$

205

$



Asset impairment charges

7



Total restructuring and asset impairment charges

$

212

$



The following table summarizes the restructuring and asset impairment activity for the 2009
restructuring program during the first nine months of 2009:

Employee

Severance and

Asset

(In Millions)

Benefits

Impairments

Total

Accrued restructuring balance as of December 27, 2008

$



$



$



Additional accruals

208

7

215

Adjustments

(3

)



(3

)

Cash payments

(134

)



(134

)

Non-cash settlements



(7

)

(7

)

Accrued restructuring balance as of September 26, 2009

$

71

$



$

71

We recorded the additional accruals, net of adjustments, as restructuring and asset impairment
charges. The remaining accrual as of September 26, 2009 was related to severance benefits that are
recorded within accrued compensation and benefits.

The net charges above include $205 million that relate to employee severance and benefit
arrangements for approximately 6,500 employees, of which 4,100 employees have left the company as
of September 26, 2009. Most of these employee actions occurred within manufacturing.

We estimate that these employee severance and benefit charges will result in gross annual savings
of approximately $330 million. The substantial majority of these savings will be realized within
cost of sales.

50

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

2006 Efficiency Program

In the third quarter of 2006, management approved several actions as part of a restructuring plan
designed to improve operational efficiency and financial results. Restructuring and asset
impairment charges were as follows:

(In Millions)

YTD 2009

YTD 2008

Employee severance and benefit arrangements

$

8

$

125

Asset impairment charges

8

334

Total restructuring and asset impairment charges

$

16

$

459

During Q1 2008, we incurred $275 million in additional asset impairment charges related to assets
that we sold in Q2 2008 in conjunction with the divestiture of our NOR flash memory business. We
determined the impairment charges using the revised fair value of the equity and note receivable
that we received upon completion of the divestiture, less selling costs. The lower fair value was
primarily a result of a decline in the outlook for the flash memory market segment. We had
previously incurred $85 million in asset impairment charges in 2007 related to assets that we sold
in Q2 2008 in conjunction with the divestiture of our NOR flash memory business. We determined the impairment
charges based on the fair value, less selling costs, that we expected to receive upon completion of
the divestiture.

The following table summarizes the restructuring and asset impairment activity for the 2006
efficiency program during the first nine months of 2009:

Employee

Severance and

Asset

(In Millions)

Benefits

Impairments

Total

Accrued restructuring balance as of December 27, 2008

$

57

$



$

57

Additional accruals

18

8

26

Adjustments

(10

)



(10

)

Cash payments

(65

)



(65

)

Non-cash settlements



(8

)

(8

)

Accrued restructuring balance as of September 26, 2009

$



$



$



We recorded the additional accruals, net of adjustments, as restructuring and asset impairment
charges. The 2006 efficiency program is substantially complete as of September 26, 2009.

From Q3 2006 through Q3 2009, we incurred a total of $1.6 billion in restructuring and asset
impairment charges related to this plan. These charges included a total of $686 million related to
employee severance and benefit arrangements for approximately 11,300 employees, of which
substantially all employees had left the company as of September 26, 2009. A substantial majority
of these employee actions affected employees within manufacturing, information technology, and
marketing. The restructuring and asset impairment charges also included $896 million in asset
impairment charges.

Amortization of acquisition-related intangibles and costs. The increase of $12 million was due to
amortization of intangibles and costs related to the acquisition of Wind River completed in the
third quarter of 2009. See Note 14: Acquisitions in the Notes to Consolidated Condensed Financial
Statements of this Form 10-Q.

Gains (Losses) on Equity Method Investments, Net

Gains (losses) on equity method investments, net were as follows:

(In Millions)

YTD 2009

YTD 2008

Equity method losses, net

$

(144

)

$

(212

)

Impairment charges

(32

)

(261

)

Other, net

1

13

Total gains (losses) on equity method investments, net

$

(175

)

$

(460

)

We recognized lower impairment charges and lower equity method losses in the first nine months of
2009 compared to the first nine months of 2008. Impairment charges in the first nine months of 2008
were primarily related to a $250 million impairment charge recognized on our investment in Numonyx.
Our equity method losses include losses related to Numonyx ($46 million in the first nine months of
2009 and $68 million in the first nine months of 2008), Clearwire LLC ($43 million in the first
nine months of 2009), and Clearwire Corporation ($118 million in the first nine months of 2008).

51

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

Gains (Losses) on Other Equity Investments, Net

Gains (losses) on other equity investments, net were as follows:

(In Millions)

YTD 2009

YTD 2008

Impairment charges

$

(136

)

$

(173

)

Gains on sales

16

49

Other, net

34

20

Total gains (losses) on other equity investments, net

$

(86

)

$

(104

)

We recognized lower impairment charges on our marketable equity securities in the first nine months
of 2009 compared to the first nine months of 2008, partially offset by higher impairment charges on
our non-marketable equity investments. We also recognized lower gains on sales in the first nine
months of 2009 compared to the first nine months of 2008. Impairment charges in the first nine
months of 2008 included $97 million of impairment charges on our investment in Micron.

Interest and Other, Net

The components of interest and other, net were as follows:

(In Millions)

YTD 2009

YTD 2008

Interest income

$

144

$

461

Interest expense

(1

)

(8

)

Other, net

15

13

Total interest and other, net

$

158

$

466

We recognized lower interest income in the first nine months of 2009 compared to the first nine
months of 2008 as a result of lower interest rates and, to a lesser extent, lower average
investment balances. The average interest rate earned during the first nine months of 2009
decreased by approximately 2.4 percentage points compared to the first nine months of 2008. In
addition, lower gains on divestitures (none in the first nine months of 2009 and $59 million in the
first nine months of 2008) were more than offset by approximately $55 million of fair value gains
in the first nine months of 2009 on our trading assets, compared to approximately $45 million of
fair value losses in the first nine months of 2008.

Provision for Taxes

Our provision for taxes and effective tax rate were as follows:

(Dollars in Millions)

YTD 2009

YTD 2008

Income before taxes

$

3,111

$

7,317

Provision for taxes

$

1,024

$

2,259

Effective tax rate

32.9

%

30.9

%

Based on our analysis, the EC fine (recorded in Q2 2009) is not tax deductible. The EC fine of
$1.447 billion, with no associated reduction in the provision
for taxes, significantly increased our
effective tax rate in the first nine months of 2009. The impact of the EC fine was partially offset
by a higher percentage of our profits being derived from lower-tax jurisdictions compared to the
first nine months of 2008 and the U.S R&D income tax credit that was reinstated in Q4 2008. In
addition, the effective tax rate was also positively impacted by settlements and effective
settlements of various uncertain tax positions, partially offset by adjustments for differences
between our finalized tax return and the provision recorded, and other adjustments to tax
provisions from prior years.

52

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

Business Outlook

Our future results of operations and the topics of other forward-looking statements contained in
this Form 10-Q, including this MD&A, involve a number of risks and uncertaintiesin particular:

In addition to the various important factors discussed above, a number of other important
factors could cause actual results to differ materially from our expectations. See the risks
described in Risk Factors in Part II, Item 1A of this Form 10-Q.

Our expectations for the remainder of 2009 are as follows:

Q4 2009



Revenue: $10.1 billion, plus or minus $400 million.



Gross margin percentage: 62% plus or minus three points.



Depreciation: approximately $1.2 billion.



Research and development plus marketing, general and administrative expenses:
approximately $2.9 billion.

We expect that our corporate representatives will, from time to time, meet privately with
investors, investment analysts, the media, and others, and may reiterate the forward-looking
statements contained in the Business Outlook section and elsewhere in this Form 10-Q, including
any such statements that are incorporated by reference in this Form 10-Q. At the same time, we will
keep this Form 10-Q and our most current business outlook publicly available on our Investor
Relations web site at www.intc.com. The public can continue to rely on the business outlook
published on the web site as representing our current expectations on matters covered, unless we
publish a notice stating otherwise. The statements in the Business Outlook and other
forward-looking statements in this Form 10-Q are subject to revision during the course of the year
in our quarterly earnings releases and SEC filings and at other times.

From the close of business on November 25, 2009 until our quarterly earnings release is published,
presently scheduled for January 14, 2010, we will observe a quiet period. During the quiet
period, the Business Outlook and other forward-looking statements first published in our Form 8-K
filed on October 13, 2009, as reiterated or updated as applicable, in this Form 10-Q, should be
considered historical, speaking as of prior to the quiet period only and not subject to update.
During the quiet period, our representatives will not comment on our business outlook or our
financial results or expectations. The exact timing and duration of the routine quiet period, and
any others that we utilize from time to time, may vary at our discretion.

53

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

Liquidity and Capital Resources

Cash and cash equivalents, short-term investments, debt instruments included in trading assets, and
debt at the end of each period were as follows:

Sept. 26,

Dec. 27,

(Dollars in Millions)

2009

2008

Cash and cash equivalents, short-term investments, and debt
instruments included in trading assets

$

12,930

$

11,544

Short-term and long-term debt

$

2,224

$

1,287

Debt as % of stockholders equity

5.7

%

3.3

%

In summary, our cash flows were as follows:

Nine Months Ended

Sept. 26,

Sept. 27,

(In Millions)

2009

2008

Net cash provided by operating activities

$

7,765

$

8,330

Net cash used for investing activities

(5,196

)

(3,876

)

Net cash used for financing activities

(1,810

)

(8,057

)

Net increase (decrease) in cash and cash equivalents

$

759

$

(3,603

)

Operating Activities

Cash provided by operating activities is net income adjusted for certain non-cash items and changes
in assets and liabilities.

Cash from operations for the first nine months of 2009 was $7.8 billion, a decrease of $565 million
compared to the first nine months of 2008, primarily due to lower net income, partially offset by
changes in our working capital. Income taxes paid, net of refunds in the first nine months of 2009
compared to the first nine months of 2008 were $2.9 billion lower on lower income before taxes in
2009 and timing of payments. In addition, other changes in our working capital as of September 26,
2009 compared to December 27, 2008 were as follows:

Accounts receivable increased due to a higher proportion of sales at the end of the
third quarter of 2009.



Other accrued liabilities included $62 million in customer credit balances as of
September 26, 2009 ($447 million as of December 27, 2008).

For the first nine months of 2009, our two largest customers accounted for 39% of net revenue (38%
for the first nine months of 2008) with one of those customers accounting for 21% of our net
revenue, and another customer accounting for 18% of our net revenue. These two largest customers
accounted for 33% of net accounts receivable at September 26, 2009 (46% at December 27, 2008).

The
increase in cash used for investing activities in the first nine
months of 2009 compared to the
first nine months of 2008 was driven primarily by a decrease in maturities and sales of
available-for-sale investments and higher cash paid for acquisitions, partially offset by an
increase in maturities and sales of trading assets.

Financing Activities

Financing cash flows consist primarily of repurchases and retirement of common stock, payment of
dividends to stockholders, issuance of long-term debt, and proceeds from sales of shares through
employee equity incentive plans.

The decrease in cash used for financing activities in the first nine months of 2009, compared to
the first nine months of 2008, was primarily due to a decrease in repurchases and retirement of
common stock and the issuance of long-term debt, partially offset by lower proceeds from sales of
shares through employee equity incentive plans.

54

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

We used the majority of the proceeds from the issuance of long-term debt to repurchase and retire
common stock. During the first nine months of 2009 we repurchased 88.2 million shares at a cost of
$1.7 billion (324.1 million shares at a cost of $7.1 billion during the first nine months of 2008)
as part of our common stock repurchase program. As of September 26, 2009, $5.7 billion remained
available for repurchase under the existing repurchase authorization of $25 billion. We base our
level of stock repurchases on internal cash management decisions, and this level may fluctuate. Our
dividend payments totaled $2.3 billion for the first nine months of 2009, flat compared to the
first nine months of 2008. Proceeds from the sale of shares pursuant to employee equity incentive
plans totaled $367 million for the first nine months of 2009 compared to $1.1 billion for the first
nine months of 2008, as a result of significantly lower volume of employee exercises of stock
options.

Liquidity

Cash generated by operations is used as our primary source of liquidity. As of September 26, 2009,
cash and cash equivalents, debt instruments included in trading assets, and short-term investments
totaled $12.9 billion.

Our investment policy requires all investments with original maturities at the time of investment
of up to 6 months to be rated at least A-1/P-1 by Standard & Poors/Moodys, and specifies a higher
minimum rating for investments with longer maturities. For instance, investments with maturities of
greater than three years require a minimum rating of AA-/Aa3 at the time of investment. Government
regulations imposed on investment alternatives of our non-U.S. subsidiaries, or the absence of A
rated counterparties in certain countries, result in some minor exceptions. Substantially all of
our investments in debt instruments are with A/A2 or better rated issuers, and a substantial
majority of the issuers are rated AA-/Aa3 or better. Additionally, we limit the amount of credit
exposure to any one counterparty based on our analysis of that counterpartys relative credit
standing. As of September 26, 2009, the total credit exposure to any single counterparty did not
exceed $500 million.

Credit rating criteria for derivative instruments are similar to those for other investments. The
amounts subject to credit risk related to derivative instruments are generally limited to the
amounts, if any, by which a counterpartys obligations exceed our obligations with that
counterparty, because we enter into master netting arrangements with counterparties when possible
to mitigate credit risk in derivative transactions.

The credit quality of our investment portfolio remains high during this difficult credit
environment, with credit-related other-than-temporary impairment losses on our available-for-sale
debt instruments limited to less than $55 million cumulatively since the beginning of 2008. In
addition, we continue to be able to invest in high-credit-quality investments. With the exception
of a limited amount of investments for which we have recognized other-than-temporary impairments,
we have not seen significant liquidation delays, and for those that have matured we have received
the full par value of our original debt investments. We do not intend to sell our debt investments
that have unrealized losses in accumulated other comprehensive income (loss). In addition, it is
not more likely than not that we will be required to sell our debt investments that have unrealized
losses in accumulated other comprehensive income (loss) before we recover the amortized cost basis.

As of September 26, 2009, our balance of cash and cash equivalents, debt instruments included in
trading assets, and short-term investments included $10.7 billion with a remaining maturity of less
than one year. As of September 26, 2009, our cumulative unrealized losses, net of corresponding
hedging activities, related to debt instruments classified as trading assets were approximately $50
million (approximately $145 million as of December 27, 2008). As of September 26, 2009, our
cumulative unrealized losses related to debt instruments classified as available-for-sale were
approximately $90 million (approximately $215 million as of December 27, 2008). Substantially all
of our unrealized losses can be attributed to fair value fluctuations that occurred in an unstable
credit environment that resulted in a decrease in the liquidity for these debt instruments.

We continually monitor the credit risk in our portfolio and mitigate our credit and interest rate
exposures in accordance with the policies approved by our Board of Directors. We intend to continue
to closely monitor future developments in the credit markets and make appropriate changes to our
investment policy as deemed necessary. Based on our ability to liquidate our investment portfolio
and our expected operating cash flows, we do not anticipate any liquidity constraints as a result
of either the current credit environment or potential investment fair value fluctuations.

Our commercial paper program provides another potential source of liquidity. We have an ongoing
authorization from our Board of Directors to borrow up to $3.0 billion, including through the
issuance of commercial paper. Maximum borrowings under our commercial paper program during the
first nine months of 2009 were approximately $610 million, although no commercial paper remained
outstanding as of September 26, 2009. Our commercial paper was rated A-1+ by Standard & Poors and
P-1 by Moodys as of September 26, 2009. We also have an automatic shelf registration statement on
file with the SEC pursuant to which we may offer an unspecified amount of debt, equity, and other
securities.

We believe that we have the financial resources needed to meet business requirements for the next
12 months, including capital expenditures for worldwide manufacturing and assembly and test,
working capital requirements, and potential dividends, common stock repurchases, and acquisitions
or strategic investments.

55

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

Fair Value of Financial Instruments

Fair value is the price that would be received from selling an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. When
determining fair value, we consider the principal or most advantageous market in which we would
transact, and we consider assumptions that market participants would use when pricing the asset or
liability, such as inherent risk, transfer restrictions, and risk of non-performance.

Credit risk is factored into the valuation of financial instruments that we measure and record at
fair value on a recurring basis. When fair value is determined using observable market prices, the
credit risk is incorporated into the market price of the financial instrument. When fair value is
determined using pricing models, such as a discounted cash flow model, the issuers credit risk
and/or Intels credit risk is factored into the calculation of the fair value, as appropriate.
During the first nine months of 2009, changes in counterparty credit risk and our own credit risk
did not have a significant impact on the valuation of our assets and liabilities measured and
recorded at fair value.

When values are determined using inputs that are both unobservable and significant to the values of
the instruments being measured, we classify those instruments as Level 3. As of September 26, 2009,
our financial instruments measured and recorded at fair value on a recurring basis included $17.2
billion of assets, of which $1.5 billion (9%) were classified as Level 3. In addition, our
financial instruments measured and recorded at fair value on a recurring basis included $373
million of liabilities, of which $192 million (51%) were classified as Level 3. During the first
nine months of 2009, we transferred approximately $415 million of assets from Level 3 to Level 2.
These assets consisted of floating-rate notes that were transferred from Level 3 to Level 2 due to
a greater availability of observable market data and/or non-binding market consensus prices to
value or corroborate the value of our instruments. During the first nine months of 2009, we
recognized an insignificant amount of gains or losses on the assets that were transferred from
Level 3 to Level 2.

During the first nine months of 2009, the Level 3 assets and liabilities that are measured and
recorded at fair value on a recurring basis experienced net unrealized fair value gains totaling
$69 million. Of this amount, gains of $60 million were recognized in our consolidated condensed
statements of operations and gains of $9 million were included in other comprehensive income.
During the first nine months of 2009, we did not experience any significant realized gains (losses)
related to the Level 3 assets or liabilities in our portfolio.

Marketable Debt Instruments

As of September 26, 2009, our assets measured and recorded at fair value on a recurring basis
included $15.9 billion of marketable debt instruments. Of these instruments, $672 million was
classified as Level 1, $13.7 billion as Level 2, and $1.5 billion as Level 3.

When available, we use observable market prices for identical securities to value our marketable
debt instruments. If observable market prices are not available, we use non-binding market
consensus prices that we seek to corroborate with observable market data, if available, or
non-observable market data. When prices from multiple sources are available for a given instrument,
we use observable market quotes to price our instruments, in lieu of prices from other sources.

Our balance of marketable debt instruments that are measured and recorded at fair value on a
recurring basis and classified as Level 1 was classified as such due to the usage of observable
market prices for identical securities that are traded in active markets. Marketable debt
instruments in this category generally include certain of our floating-rate notes, corporate bonds,
and money market fund deposits. Management judgment was required to determine our policy that
defines the levels at which sufficient volume and frequency of transactions are met for a market to
be considered active. Our assessment of an active market for our marketable debt instruments
generally takes into consideration activity during each week of the one-month period prior to the
valuation date of each individual instrument, including the number of days each individual
instrument trades and the average weekly trading volume in relation to the total outstanding amount
of the issued instrument.

56

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

Approximately 10% of our balance of marketable debt instruments that are measured and recorded at
fair value on a recurring basis and classified as Level 2 was classified as such due to the usage
of observable market prices for identical securities that are traded in less active markets. When
observable market prices for identical securities are not available, we price our marketable debt
instruments using: non-binding market consensus prices that are corroborated with observable market
data; quoted market prices for similar instruments; or pricing models, such as a discounted cash
flow model, with all significant inputs derived from or corroborated with observable market data.
Non-binding market consensus prices are based on the proprietary valuation models of pricing
providers or brokers. These valuation models incorporate a number of inputs, including non-binding
and binding broker quotes; observable market prices for identical and/or similar securities; and
the internal assumptions of pricing providers or brokers that use observable market inputs and to a
lesser degree non-observable market inputs. We corroborate the non-binding market consensus prices
with observable market data using statistical models when observable market data exist. The
discounted cash flow model uses observable market inputs, such as LIBOR-based yield curves,
currency spot and forward rates, and credit ratings. Approximately 40% of our balance of marketable
debt instruments that are measured and recorded at fair value on a recurring basis and classified
as Level 2 was classified as such due to the usage of non-binding market consensus prices that are
corroborated with observable market data and approximately 50% due to the usage of a discounted
cash flow model. Marketable debt instruments classified as Level 2 generally include commercial
paper, bank time deposits, municipal bonds, certain of our money market fund deposits, and a
majority of floating-rate notes and corporate bonds.

Our marketable debt instruments that are measured and recorded at fair value on a recurring basis
and classified as Level 3 were classified as such due to the lack of observable market data to
corroborate either the non-binding market consensus prices or the non-binding broker quotes. When
observable market data is not available, we corroborate the non-binding market consensus prices and
non-binding broker quotes using unobservable data, if available. Marketable debt instruments in
this category generally include asset-backed securities and certain of our floating-rate notes and
corporate bonds. All of our investments in asset-backed securities were classified as Level 3, and
substantially all of them were valued using non-binding market consensus prices that we were not
able to corroborate with observable market data due to the lack of transparency in the market for
asset-backed securities.

Equity Securities

As of September 26, 2009, our portfolio of assets measured and recorded at fair value on a
recurring basis included $766 million of marketable equity securities. Of these securities, $720
million was classified as Level 1 because the valuations were based on quoted prices for identical
securities in active markets. Our assessment of an active market for our marketable equity
securities generally takes into consideration activity during each week of the one-month period
prior to the valuation date for each individual security, including the number of days each
individual equity security trades and the average weekly trading volume in relation to the total
outstanding shares of that security. The fair values of our investments in Clearwire Corporation
($301 million) and VMware, Inc. ($183 million) constituted a majority of the fair values of the
marketable equity securities that we classified as Level 1. Marketable equity securities classified
as Level 2 ($46 million) were classified as such because their valuations were either based on
quoted prices for identical securities in less active markets or adjusted for security-specific
restrictions.

Contractual Obligations

During the third quarter of 2009, we issued $2.0 billion of junior subordinated convertible
debentures (the 2009 debentures) due in 2039. The 2009 debentures pay a fixed annual rate of 3.25%,
to be paid semiannually beginning February 1, 2010. Our total
cash payments (including
anticipated interest payments that are not recorded on the consolidated condensed balance
sheets and excluding fair value adjustments that affect the amount recorded on the consolidated
condensed balance sheets) over the life of this long-term debt obligation are expected to be
approximately $4.0 billion. Any future settlement of convertible debt would reduce total
interest payments.

57

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information in this section should be read in connection with the information on financial
market risk related to changes in interest rates in Part II, Item 7A, Quantitative and Qualitative
Disclosures About Market Risk, in our Annual Report on Form 10-K for the year ended December 27,
2008. All of the potential changes noted below are based on sensitivity analyses performed on our
financial positions as of September 26, 2009 and December 27, 2008. Actual results may differ
materially.

Currency Exchange Rates

We generally hedge currency risks of non-U.S.-dollar-denominated investments in debt instruments
and loans receivable with offsetting currency forward contracts, currency options, or currency
interest rate swaps. Gains and losses on these non-U.S.-currency investments would generally be
offset by corresponding losses and gains on the related hedging instruments, resulting in a
negligible net exposure to loss.

A majority of our revenue, expense, and capital purchasing activities are transacted in U.S.
dollars. However, certain operating expenditures and capital purchases are incurred in or exposed
to other currencies, primarily the euro, the Israeli shekel, the Chinese yuan, and the Japanese
yen. We have established balance sheet and forecasted transaction currency risk management programs
to protect against fluctuations in fair value and the volatility of future cash flows caused by
changes in exchange rates. We generally utilize currency forward contracts and, to a lesser extent,
currency options in these hedging programs. Our hedging programs reduce, but do not always entirely
eliminate, the impact of currency exchange rate movements (see Risk Factors in Part II, Item 1A
of this Form 10-Q). We considered the historical trends in currency exchange rates and determined
that it was reasonably possible that a weighted average adverse change of 20% in currency exchange
rates could be experienced in the near term. Such an adverse change, after taking into account
hedges and offsetting positions, would have resulted in an adverse impact on income before taxes of
less than $30 million as of September 26, 2009 (less than $55 million as of December 27, 2008).

Equity Prices

Our marketable equity investments include marketable equity securities and equity derivative
instruments such as warrants and options. To the extent that our marketable equity securities have
strategic value, we typically do not attempt to reduce or eliminate our equity market exposure
through hedging activities; however, for our investments in strategic equity derivative
instruments, including warrants, we may enter into transactions to reduce or eliminate the equity
market risks. For securities that we no longer consider strategic, we evaluate legal, market, and
economic factors in our decision on the timing of disposal and whether it is possible and
appropriate to hedge the equity market risk.

We hold derivative instruments that seek to offset changes in liabilities related to the equity
market risks of certain deferred compensation arrangements. The gains and losses from changes in
fair value of these derivatives are designed to offset the gains and losses on the related
liabilities, resulting in a negligible net exposure to loss.

As of September 26, 2009, the fair value of our available-for-sale marketable equity securities and
our equity derivative instruments, including hedging positions, was $774 million ($362 million as
of December 27, 2008). Our investments in Clearwire Corporation and VMware constituted a majority
of our marketable equity securities as of September 26, 2009, and were carried at a fair market
value of $301 million and $183 million, respectively. To assess the market price sensitivity of our
marketable equity investments, we analyzed the historical movements over the past several years of
high-technology stock indices that we considered appropriate. Assuming a loss of 65% in market
prices, and after reflecting the impact of hedges and offsetting positions, the aggregate value of
our marketable equity investments could decrease by approximately $505 million, based on the value
as of September 26, 2009 (a decrease in value of approximately $220 million, based on the value as
of December 27, 2008 using an assumed loss of 60%).

Many of the same factors that could result in an adverse movement of equity market prices affect
our non-marketable equity investments, although we cannot always quantify the impact directly.
Financial markets and credit markets are volatile, which could negatively affect the prospects of
the companies we invest in, their ability to raise additional capital, and the likelihood of our
being able to realize value in our investments through liquidity events such as initial public
offerings, mergers, and private sales. These types of investments involve a great deal of risk, and
there can be no assurance that any specific company will grow or become successful; consequently,
we could lose all or part of our investment. Our non-marketable equity investments, excluding
investments accounted for under the equity method, had a carrying amount of $990 million as of
September 26, 2009 ($1.0 billion as of December 27, 2008). As of September 26, 2009, the carrying
amount of our non-marketable equity method investments was $2.5 billion ($3.0 billion as of
December 27, 2008). A substantial majority of this balance as of September 26, 2009 was
concentrated in companies in the flash memory market segment. Our flash memory market segment
investments include our investment of $1.4 billion in IMFT ($1.7 billion as of December 27, 2008),
$305 million in IMFS ($329 million as of December 27, 2008), and $438 million in Numonyx ($484
million as of December 27, 2008).

58

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Based on managements evaluation (with the participation of our Chief Executive Officer (CEO) and
Chief Financial Officer (CFO)), as of the end of the period covered by this report, our CEO and CFO
have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended, (the Exchange Act)) are effective
to provide reasonable assurance that information required to be disclosed by us in reports that we
file or submit under the Exchange Act is recorded, processed, summarized and reported within the
time periods specified in Securities and Exchange Commission rules and forms and is accumulated and
communicated to management, including our principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes to our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this
report that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including the CEO and CFO, does not expect that our Disclosure Controls or our
internal control over financial reporting will prevent or detect all error and all fraud. A control
system, no matter how well designed and operated, can provide only reasonable, not absolute,
assurance that the control systems objectives will be met. The design of a control system must
reflect the fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Further, because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that misstatements due to error
or fraud will not occur or that all control issues and instances of fraud, if any, have been
detected. These inherent limitations include the realities that judgments in decision-making can be
faulty and that breakdowns can occur because of simple error or mistake. Controls can also be
circumvented by the individual acts of some persons, by collusion of two or more people, or by
management override of the controls. The design of any system of controls is based in part on
certain assumptions about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future conditions.
Projections of any evaluation of controls effectiveness to future periods are subject to risks.
Over time, controls may become inadequate because of changes in conditions or deterioration in the
degree of compliance with policies or procedures.

59

PART II  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For a discussion of legal proceedings, see Note 24: Contingencies in the Notes to Consolidated
Condensed Financial Statements of this Form 10-Q.

ITEM 1A. RISK FACTORS

We describe our business risk factors below. This description includes any material changes to and
supersedes the description of the risk factors associated with our business previously disclosed in
Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 27, 2008.

Fluctuations in demand for our products may harm our financial results and are difficult to
forecast.
If demand for our products fluctuates as a result of economic conditions or for other reasons, our
revenue and profitability could be harmed. Important factors that could cause demand for our
products to fluctuate include:



changes in business and economic conditions, including downturns in the semiconductor
industry and/or the overall economy;



changes in consumer confidence caused by changes in market conditions, including changes
in the credit market, expectations for inflation, and energy prices;

If product demand decreases, our manufacturing or assembly and test capacity could be
underutilized, and we may be required to record an impairment on our long-lived assets, including
facilities and equipment, as well as intangible assets, which would increase our expenses. In
addition, if product demand decreases or we fail to forecast demand accurately, we could be
required to write off inventory or record underutilization charges, which would have a negative
impact on our gross margin. Factory-planning decisions may shorten the useful lives of long-lived
assets, including facilities and equipment, and cause us to accelerate depreciation. In the long
term, if product demand increases, we may not be able to add manufacturing or assembly and test
capacity fast enough to meet market demand. These changes in demand for our products, and changes
in our customers product needs, could have a variety of negative effects on our competitive
position and our financial results, and, in certain cases, may reduce our revenue, increase our
costs, lower our gross margin percentage, or require us to recognize impairments of our assets.

We may be subject to litigation proceedings that could harm our business.
We may be subject to legal claims or regulatory matters involving stockholder, consumer,
competition, and other issues on a global basis. As described in Note 24: Contingencies in the
Notes to Consolidated Condensed Financial Statements of this Form 10-Q, we are currently engaged in
a number of litigation matters, particularly with respect to competition. Litigation is subject to
inherent uncertainties, and unfavorable rulings could occur. An unfavorable ruling could include
monetary damages or, in cases for which injunctive relief is sought, an injunction prohibiting us
from manufacturing or selling one or more products. If we were to receive an unfavorable ruling in
a matter, our business and results of operations could be materially harmed.

The semiconductor industry and our operations are characterized by a high percentage of costs that
are fixed or difficult to reduce in the short term, and by product demand that is highly variable
and subject to significant downturns that may harm our business, results of operations, and
financial condition.
The semiconductor industry and our operations are characterized by high costs, such as those
related to facility construction and equipment, R&D, and employment and training of a highly
skilled workforce, that are either fixed or difficult to reduce in the short term. At the same
time, demand for our products is highly variable and there have been downturns, often in connection
with maturing product cycles as well as downturns in general economic market conditions. These
downturns have been characterized by reduced product demand, manufacturing overcapacity and
resulting underutilization charges, high inventory levels, and lower average selling prices. The
combination of these factors may cause our revenue, gross margin, cash flow, and profitability to
vary significantly in both the short and long term.

60

We operate in intensely competitive industries, and our failure to respond quickly to technological
developments and incorporate new features into our products could harm our ability to compete.
We operate in intensely competitive industries that experience rapid technological developments,
changes in industry standards, changes in customer requirements, and frequent new product
introductions and improvements. If we are unable to respond quickly and successfully to these
developments, we may lose our competitive position, and our products or technologies may become
uncompetitive or obsolete. To compete successfully, we must maintain a successful R&D effort,
develop new products and production processes, and improve our existing products and processes at
the same pace or ahead of our competitors. We may not be able to develop and market these new
products successfully, the products we invest in and develop may not be well received by customers,
and products developed and new technologies offered by others may affect demand for our products.
These types of events could have a variety of negative effects on our competitive position and our
financial results, such as reducing our revenue, increasing our costs, lowering our gross margin
percentage, and requiring us to recognize impairments on our assets.

We invest in companies for strategic reasons and may not realize a return on our investments.
We make investments in companies around the world to further our strategic objectives and support
our key business initiatives. Such investments include equity or debt instruments of public or
private companies, and many of these instruments are non-marketable at the time of our initial
investment. These companies range from early-stage companies that are often still defining their
strategic direction to more mature companies with established revenue streams and business models.
The success of these companies is dependent on product development, market acceptance, operational
efficiency, and other key business factors. The companies in which we invest may fail because they
may not be able to secure additional funding, obtain favorable investment terms for future
financings, or take advantage of liquidity events such as public offerings, mergers, and private
sales. The current economic environment may increase the risk of failure for many of the companies
in which we invest due to limited access to credit and reduced frequency of liquidity events. If
any of these private companies fail, we could lose all or part of our investment in that company.
If we determine that an other-than-temporary decline in the fair value exists for an equity
investment in a public or private company in which we have invested, we write down the investment
to its fair value and recognize the related write-down as an investment loss. The majority of our
non-marketable equity investment portfolio balance is concentrated in companies in the flash memory
market segment, and declines in this market segment or changes in managements plans with respect
to our investments in this market segment could result in significant impairment charges, impacting
gains (losses) on equity method investments and gains (losses) on other equity investments.

Furthermore, when the strategic objectives of an investment have been achieved, or if the
investment or business diverges from our strategic objectives, we may decide to dispose of the
investment. Our non-marketable equity investments in private companies are not liquid, and we may
not be able to dispose of these investments on favorable terms or at all. The occurrence of any of
these events could harm our results of operations. Additionally, for cases in which we are required
under equity method accounting to recognize a proportionate share of another companys income or
loss, such income and loss may impact our earnings. Gains or losses from equity securities could
vary from expectations depending on gains or losses realized on the sale or exchange of securities,
gains or losses from equity method investments, and impairment charges related to debt instruments
as well as equity and other investments.

Our results of operations could vary as a result of the methods, estimates, and judgments that we
use in applying our accounting policies.
The methods, estimates, and judgments that we use in applying our accounting policies have a
significant impact on our results of operations (see Critical Accounting Estimates in Part I,
Item 2 of this Form 10-Q). Such methods, estimates, and judgments are, by their nature, subject to
substantial risks, uncertainties, and assumptions, and factors may arise over time that lead us to
change our methods, estimates, and judgments. Changes in those methods, estimates, and judgments
could significantly affect our results of operations. The current volatility in the financial
markets and overall economic uncertainty increase the risk that the actual amounts realized in the
future on our debt and equity investments will differ significantly from the fair values currently
assigned to them.

Fluctuations in the mix of products sold may harm our financial results.
Because of the wide price differences among and within mobile, desktop, and server microprocessors,
the mix and types of performance capabilities of microprocessors sold affect the average selling
price of our products and have a substantial impact on our revenue and gross margin. Our financial
results also depend in part on the mix of other products that we sell, such as chipsets, flash
memory, and other semiconductor products. In addition, more recently introduced products tend to
have higher associated costs because of initial overall development and production ramp.
Fluctuations in the mix and types of our products may also affect the extent to which we are able
to recover the fixed costs and investments associated with a particular product, and as a result
can harm our financial results.

61

Our global operations subject us to risks that may harm our results of operations and financial
condition.
We have sales offices, R&D, manufacturing, and assembly and test facilities in many countries, and
as a result, we are subject to risks associated with doing business globally. Our global operations
may be subject to risks that may limit our ability to manufacture, assemble and test, design,
develop, or sell products in particular countries, which could, in turn, harm our results of
operations and financial condition, including:



security concerns, such as armed conflict and civil or military unrest, crime, political
instability, and terrorist activity;



health concerns;



natural disasters;



inefficient and limited infrastructure and disruptions, such as large-scale outages or
interruptions of service from utilities or telecommunications providers and supply chain
interruptions;



differing employment practices and labor issues;



local business and cultural factors that differ from our normal standards and practices;



regulatory requirements and prohibitions that differ between jurisdictions; and



restrictions on our operations by governments seeking to support local industries,
nationalization of our operations, and restrictions on our ability to repatriate earnings.

In addition, although most of our products are sold in U.S. dollars, we incur a significant amount
of certain types of expenses, such as payroll, utilities, tax, and marketing expenses, as well as
certain investing and financing activities, in local currencies. Our hedging programs reduce, but
do not entirely eliminate, the impact of currency exchange rate movements, and therefore
fluctuations in exchange rates could harm our business operating results and financial condition.
In addition, changes in tariff and import regulations and in U.S. and non-U.S. monetary policies
may harm our operating results and financial condition by increasing our expenses and reducing our
revenue. Varying tax rates in different jurisdictions could harm our operating results and
financial condition by increasing our overall tax rate.

We maintain a program of insurance coverage for various types of property, casualty, and other
risks. We place our insurance coverage with various carriers in
numerous jurisdictions. However, there is a risk that one or more of
our insurance providers may be unable to pay a claim. The types
and amounts of insurance that we obtain vary from time to time and from location to location,
depending on availability, cost, and our decisions with respect to risk retention. The policies are
subject to deductibles and exclusions that result in our retention of a level of risk on a
self-insurance basis. Losses not covered by insurance may be substantial and may increase our
expenses, which could harm our results of operations and financial condition.

Failure to meet our production targets, resulting in undersupply or oversupply of products, may
harm our business and results of operations.
Production of integrated circuits is a complex process. Disruptions in this process can result from
interruptions in our processes, errors, and difficulties in our development and implementation of
new processes; defects in materials; disruptions in our supply of materials or resources; and
disruptions at our fabrication and assembly and test facilities due to, for example, accidents,
maintenance issues, or unsafe working conditionsall of which could affect the timing of production
ramps and yields. We may not be successful or efficient in developing or implementing new
production processes. The occurrence of any of the foregoing may result in our failure to meet or
increase production as desired, resulting in higher costs or substantial decreases in yields, which
could affect our ability to produce sufficient volume to meet specific product demand. The
unavailability or reduced availability of certain products could make it more difficult to
implement our platform strategy. We may also experience increases in yields. A substantial increase
in yields could result in higher inventory levels and the possibility of resulting underutilization
charges as we slow production to reduce inventory levels. The occurrence of any of these events
could harm our business and results of operations.

We may have difficulties obtaining the resources or products we need for manufacturing, assembling
and testing our products, or operating other aspects of our business, which could harm our ability
to meet demand for our products and may increase our costs.
We have thousands of suppliers providing various materials that we use in the production of our
products and other aspects of our business, and we seek, where possible, to have several sources of
supply for all of those materials. However, we may rely on a single or a limited number of
suppliers, or upon suppliers in a single country, for these materials. The inability of such
suppliers to deliver adequate supplies of production materials or other supplies could disrupt our
production processes or could make it more difficult for us to implement our business strategy. In
addition, production could be disrupted by the unavailability of the resources used in production,
such as water, silicon, electricity, and gases. The unavailability or reduced availability of the
materials or resources that we use in our business may require us to reduce production of products
or may require us to incur additional costs in order to obtain an adequate supply of those
materials or resources. The occurrence of any of these events could harm our business and results
of operations.

62

Costs related to product defects and errata may harm our results of operations and business.
Costs associated with unexpected product defects and errata (deviations from published
specifications) due to, for example, unanticipated problems in our manufacturing processes,
include:

These costs could be substantial and may therefore increase our expenses and lower our gross
margin. In addition, our reputation with our customers or users of our products could be damaged as
a result of such product defects and errata, and the demand for our products could be reduced.
These factors could harm our financial results and the prospects for our business.

We may be subject to claims of infringement of third-party intellectual property rights, which
could harm our business.
From time to time, third parties may assert against us or our customers alleged patent, copyright,
trademark, or other intellectual property rights to technologies that are important to our
business. As described in Note 24: Contingencies in the Notes to Consolidated Condensed Financial
Statements of this Form 10-Q, we are currently engaged in a number of litigation matters involving
intellectual property rights. We may be subject to intellectual property infringement claims from
certain individuals and companies who have acquired patent portfolios for the sole purpose of
asserting such claims against other companies. Any claims that our products or processes infringe
the intellectual property rights of others, regardless of the merit or resolution of such claims,
could cause us to incur significant costs in responding to, defending, and resolving such claims,
and may divert the efforts and attention of our management and technical personnel from our
business. As a result of such intellectual property infringement claims, we could be required or
otherwise decide that it is appropriate to:

discontinue using the technology or processes subject to infringement claims;



develop other technology not subject to infringement claims, which could be
time-consuming and costly or may not be possible; and/or



license technology from the third party claiming infringement, which license may not be
available on commercially reasonable terms.

The occurrence of any of the foregoing could result in unexpected expenses or require us to
recognize an impairment of our assets, which would reduce the value of our assets and increase
expenses. In addition, if we alter or discontinue our production of affected items, our revenue
could be harmed.

We may not be able to enforce or protect our intellectual property rights, which may harm our
ability to compete and harm our business.
Our ability to enforce our patents, copyrights, software licenses, and other intellectual property
rights is subject to general litigation risks, as well as uncertainty as to the enforceability of
our intellectual property rights in various countries. When we seek to enforce our rights, we are
often subject to claims that the intellectual property right is invalid, is otherwise not
enforceable, or is licensed to the party against whom we are asserting a claim. In addition, our
assertion of intellectual property rights often results in the other party seeking to assert
alleged intellectual property rights of its own or assert other claims against us. If we are not
ultimately successful in defending ourselves against these claims in litigation, we may not be able
to sell a particular product or family of products due to an injunction, or we may have to pay
damages that could, in turn, harm our results of operations. In addition, governments may adopt
regulations or courts may render decisions requiring compulsory licensing of intellectual property
to others, or governments may require that products meet specified standards that serve to favor
local companies. Our inability to enforce our intellectual property rights under these
circumstances may harm our competitive position and our business.

Our licenses with other companies and our participation in industry initiatives may allow other
companies, including our competitors, to use our patent rights.
Companies in the semiconductor industry often rely on the ability to license patents from each
other in order to compete. Many of our competitors have broad licenses or cross-licenses with us,
and under current case law, some of these licenses may permit these competitors to pass our patent
rights on to others. If one of these licensees becomes a foundry, our competitors might be able to
avoid our patent rights in manufacturing competing products. In addition, our participation in
industry initiatives may require us to license our patents to other companies that adopt certain
industry standards or specifications, even when such organizations do not adopt standards or
specifications proposed by us. As a result, our patents implicated by our participation in industry
initiatives might not be available for us to enforce against others who might otherwise be deemed
to be infringing those patents, our costs of enforcing our licenses or protecting our patents may
increase, and the value of our intellectual property may be impaired.

63

Decisions about the scope of operations of our business, could affect our results of operations and
financial condition.
Changes in the business environment could lead to changes in our decisions about the scope of
operations of our business and these changes could result in restructuring and asset impairment
charges. Factors that could cause actual results to differ materially from our expectations with
regard to changing the scope of our operations include:



timing and execution of plans and programs that may be subject to local labor law
requirements, including consultation with appropriate work councils;



changes in assumptions related to severance and postretirement costs;



future dispositions;



new business initiatives and changes in product roadmap, development, and manufacturing;



changes in employment levels and turnover rates;



changes in product demand and the business environment; and



changes in the fair value of certain long-lived assets.

In order to compete, we must attract, retain, and motivate key employees, and our failure to do so
could harm our results of operations.
In order to compete, we must attract, retain, and motivate executives and other key employees.
Hiring and retaining qualified executives, scientists, engineers, technical staff, and sales
representatives are critical to our business, and competition for experienced employees in the
semiconductor industry can be intense. To help attract, retain, and motivate qualified employees,
we use share-based incentive awards such as employee stock options and non-vested share units
(restricted stock units). If the value of such stock awards does not appreciate as measured by the
performance of the price of our common stock, or if our share-based compensation otherwise ceases
to be viewed as a valuable benefit, our ability to attract, retain, and motivate employees could be
weakened, which could harm our results of operations.

Our failure to comply with applicable environmental laws and regulations worldwide could harm our
business and results of operations.
The manufacturing and assembling and testing of our products require the use of hazardous materials
that are subject to a broad array of Environmental Health and Safety laws and regulations. Our
failure to comply with any of these applicable laws or regulations could result in:



regulatory penalties, fines, and legal liabilities;



suspension of production;



alteration of our fabrication and assembly and test processes; and



curtailment of our operations or sales.

In addition, our failure to manage the use, transportation, emissions, discharge, storage,
recycling, or disposal of hazardous materials could subject us to increased costs or future
liabilities. Existing and future environmental laws and regulations could also require us to
acquire pollution abatement or remediation equipment, modify our product designs, or incur other
expenses associated with such laws and regulations. Many new materials that we are evaluating for
use in our operations may be subject to regulation under existing or future environmental laws and
regulations that may restrict our use of one or more of such materials in our manufacturing,
assembly and test processes, or products. Any of these restrictions could harm our business and
results of operations by increasing our expenses or requiring us to alter our manufacturing and
assembly and test processes.

Climate change poses both regulatory and physical risks that could harm our results of operations
or affect the way we conduct our business.
In addition to the possible direct economic impact that climate change could have on us, climate
change mitigation programs and regulation can increase our costs. For example, the cost of
perfluorocompounds (PFCs), a gas that we use in our manufacturing, could increase over time under
some climate-change-focused emissions trading programs that may be imposed by government
regulation. If the use of PFCs is prohibited, we would need to obtain substitute materials that may
cost more or be less available for our manufacturing operations. We also see the potential for
higher energy costs driven by climate change regulations. Our costs could increase if utility
companies pass on their costs, such as those associated with carbon taxes, emission cap and trade
programs, or renewable portfolio standards. While we maintain business recovery plans that are
intended to allow us to recover from natural disasters or other events that can be disruptive to
our business, we cannot be sure that our plans will fully protect us from all such disasters or
events. Many of our operations are located in semi-arid regions, such as Israel and the
southwestern United States. Some scenarios predict that these regions may become even more
vulnerable to prolonged droughts due to climate change.

the jurisdictions in which profits are determined to be earned and taxed;



the resolution of issues arising from tax audits with various tax authorities;



changes in the valuation of our deferred tax assets and liabilities;



adjustments to income taxes upon finalization of various tax returns;



increases in expenses not deductible for tax purposes, including write-offs of acquired
in-process research and development and impairments of goodwill in connection with
acquisitions;



changes in available tax credits;



changes in tax laws or the interpretation of such tax laws, and changes in generally
accepted accounting principles; and



our decision to repatriate non-U.S. earnings for which we have not previously provided
for U.S. taxes.

Any significant increase in our future effective tax rates could reduce net income for future
periods.

Interest and other, net could be harmed by macroeconomic and other factors.
Factors that could cause interest and other, net in our consolidated condensed statements of
operations to fluctuate include:



fixed-income, equity, and credit market volatility;



fluctuations in foreign currency exchange rates;



fluctuations in interest rates;



changes in our cash and investment balances; and



changes in our hedge accounting treatment.

Our acquisitions, divestitures, and other transactions could disrupt our ongoing business and harm
our results of operations.
In pursuing our business strategy, we routinely conduct discussions, evaluate opportunities, and
enter into agreements regarding possible investments, acquisitions, divestitures, and other
transactions, such as joint ventures. Acquisitions and other transactions involve significant
challenges and risks, including risks that:



we may not be able to identify suitable opportunities at terms acceptable to us;



the transaction may not advance our business strategy;



we may not realize a satisfactory return on the investment we make;



we may not be able to retain key personnel of the acquired business; or



we may experience difficulty in integrating new employees, business systems, and
technology.

When we decide to sell assets or a business, we may encounter difficulty in finding or completing
divestiture opportunities or alternative exit strategies on acceptable terms in a timely manner,
and the agreed terms and financing arrangements could be renegotiated due to changes in business or
market conditions. These circumstances could delay the accomplishment of our strategic objectives
or cause us to incur additional expenses with respect to businesses that we want to dispose of, or
we may dispose of a business at a price or on terms that are less favorable than we had
anticipated, resulting in a loss on the transaction.

If we do enter into agreements with respect to acquisitions, divestitures, or other transactions,
we may fail to complete them due to:



failure to obtain required regulatory or other approvals;



intellectual property or other litigation;



difficulties that we or other parties may encounter in obtaining financing for the
transaction; or



other factors.

Further, acquisitions, divestitures, and other transactions require substantial management
resources and have the potential to divert our attention from our existing business. These factors
could harm our business and results of operations.

65

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

We have an ongoing authorization, amended in November 2005, from our Board of Directors to
repurchase up to $25 billion in shares of our common stock in open market or negotiated
transactions. As of September 26, 2009, $5.7 billion remained available for repurchase under the
existing repurchase authorization.

Common stock repurchase activity under our authorized plan during the third quarter of 2009 was as
follows (in millions, except per share amounts):

Total Number of

Dollar Value of Shares

Total Number

Shares Purchased as

that May Yet Be

of Shares

Average Price

Part of Publicly

Purchased Under the

Period

Purchased

Paid per Share

Announced Plans

Plans

June 28, 2009-July 25, 2009



$





$

7,403

July 26, 2009-August 22, 20091

88.2

$

18.95

88.2

$

5,732

August 23, 2009-September 26, 2009



$





$

5,732

Total

88.2

$

18.95

88.2

1

Shares were repurchased in privately negotiated transactions.

For the majority of restricted stock units granted, the number of shares issued on the date the
restricted stock units vest is net of the minimum statutory withholding requirements that we pay in
cash to the appropriate taxing authorities on behalf of our employees. These withheld shares are
not considered common stock repurchases under our authorized plan.

66

ITEM 6. EXHIBITS

3.1

Intel Corporation Third Restated Certificate of Incorporation of Intel
Corporation dated May 17, 2006 (incorporated by reference to Exhibit 3.1 to the
Registrants Current Report on Form 8-K as filed on May 22, 2006)

3.2

Intel Corporation Bylaws, as amended on May 19, 2009 (incorporated by
reference to Exhibit 3.1 to the Registrants Current Report on Form 8-K as filed on
May 22, 2009)

4.1

Indenture for the Registrants 3.25% Junior Subordinated Convertible
Debentures due 2039 between Intel Corporation and Wells Fargo Bank, National
Association, dated as of July 27, 2009 (the Convertible Note Indenture)

10.4

Intel Corporation 2006 Equity Incentive Plan As Amended and Restated
Effective May 20, 2009 (incorporated by reference to Exhibit 99.1 of the
Registrants Current Report on Form S-8 as filed on June 26, 2009, File No.
333-160272).

12.1

Statement Setting Forth the Computation of Ratios of Earnings to Fixed
Charges

31.1

Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the
Exchange Act